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<PAGE> 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ BELK, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ <TABLE> <S> <C> <C> DELAWARE 5311 56-2058574 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) </TABLE> 2801 WEST TYVOLA ROAD CHARLOTTE, NORTH CAROLINA 28217-4500 (704) 357-1000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ JOHN M. BELK CHIEF EXECUTIVE OFFICER BELK, INC. 2801 WEST TYVOLA ROAD CHARLOTTE, NORTH CAROLINA 28217-4500 (704) 357-1000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: <TABLE> <C> <C> JOHN D. CAPERS, JR. RALPH A. PITTS KING & SPALDING GENERAL COUNSEL 191 PEACHTREE STREET BELK, INC. ATLANTA, GEORGIA 30303 2801 WEST TYVOLA ROAD (404) 572-4600 CHARLOTTE, NORTH CAROLINA 28217-4500 (704) 357-1000 </TABLE> ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable following the effectiveness of this Registration Statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] CALCULATION OF REGISTRATION FEE <TABLE> <CAPTION> ============================================================================================================================== PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE(1) - ------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Class A Common Stock, $.01 par value per share........ 60,246,181 $11.28 $679,615,000 $200,486.43 - ------------------------------------------------------------------------------------------------------------------------------ Class B Common Stock, $.01 par value per share........ (2) -- -- (3) ============================================================================================================================== </TABLE> (1) Estimated solely for the purpose of calculating the registration fee and computed pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended, based on the aggregate book value of the shares of Common Stock of the Belk Companies to be converted into the right to receive shares of Class A Common Stock of Belk, Inc. upon consummation of the Reorganization. The aggregate book value of such shares of common stock as of November 1, 1997, was $679,615,000. (2) Includes such indeterminate number of shares of Class B Common Stock issuable upon conversion of the Class A Common Stock being registered hereunder. (3) Pursuant to Rule 457(i), no registration fee is required. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ <PAGE> 2 BELK, INC. CROSS REFERENCE TABLE LOCATION IN PROXY STATEMENT/PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-4 <TABLE> <CAPTION> ITEM NUMBER AND CAPTION IN FORM S-4 LOCATION IN PROSPECTUS ----------------------------------- ---------------------- <C> <S> <C> 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus.............................. Outside Front Cover of Proxy Statement/Prospectus; Facing Page of the Registration Statement 2. Inside Front and Outside Back Cover Pages of Prospectus........................... Table of Contents 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information........... Summary; Risk Factors 4. Terms of the Transaction.................. Summary; The Reorganization; Terms of the Reorganization Agreement 5. Pro Forma Financial Information........... Unaudited Pro Forma Combined Condensed Financial Information 6. Material Contacts With the Company Being Acquired................................ Summary; The Reorganization; Certain Relationships and Transactions 7. Additional Information Required For Reoffering by Persons and Parties Deemed to be Underwriters...................... Not Applicable 8. Interests of Named Experts and Counsel.... Not Applicable 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities............................. Not Applicable 10. Information With Respect to S-3 Registrants............................. Not Applicable 11. Incorporation of Certain Information by Reference............................... Not Applicable 12. Information With Respect to S-2 or S-3 Registrants............................. Not Applicable 13. Incorporation of Certain Information by Reference............................... Not Applicable 14. Information With Respect to Registrants Other Than S-3 or S-2 Registrants....... Summary; Business of New Belk; Security Ownership; Selected Financial Information of New Belk; Management's Discussion and Analysis of Financial Condition and Results of Operations of the Belk Companies; Index to Historical Combined Financial Statements 15. Information With Respect to S-3 Companies............................... Not Applicable 16. Information With Respect to S-2 or S-3 Companies............................... Not Applicable 17. Information With Respect to Companies Other Than S-2 or S-3 Companies......... Summary; Prospectus Supplement for Applicable Belk Company </TABLE> <PAGE> 3 <TABLE> <CAPTION> ITEM NUMBER AND CAPTION IN FORM S-4 LOCATION IN PROSPECTUS ----------------------------------- ---------------------- <C> <S> <C> 18. Information if Proxies, Consents or Authorizations Are to be Solicited...... Summary; The Reorganization; Terms of the Reorganization Agreement; The Special Meetings; Management; Security Ownership; Prospectus Supplement for Applicable Belk Company; Stockholder Proposals and Other Matters 19. Information if Proxies, Consents or Authorizations Are Not to be Solicited, or in an Exchange Offer................. Not Applicable </TABLE> <PAGE> 4 PROXY STATEMENT THE BELK COMPANIES FOR SPECIAL MEETINGS OF SHAREHOLDERS OF THE BELK COMPANIES TO BE HELD , 1998 ------------------------------------------------------------------ PROSPECTUS BELK, INC. CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE ------------------------ This Proxy Statement/Prospectus is being furnished to the shareholders (each an "Existing Belk Shareholder" and, collectively, the "Existing Belk Shareholders") of 112 separate Belk companies (each a "Belk Company" and, collectively, the "Belk Companies") in connection with the solicitation of proxies by the Board of Directors of each Belk Company for use at a special meeting of shareholders of each Belk Company to be held on , 1998, and at any adjournment thereof (each, a "Special Meeting"). The Belk Companies consist of (i) 100 companies that currently operate 204 retail department stores, (ii) seven companies that historically operated retail department stores during their existence but whose assets now consist primarily of proceeds from the sale of their retail department stores, and (iii) five companies that operate businesses that provide services to other Belk Companies and their subsidiaries. The Belk Companies are listed on Annex A to this Proxy Statement/Prospectus. The Belk Companies, either individually or in the aggregate, own 100% (with the exception of Belk Stores Services, Inc. ("BSS"), in which the Belk Companies own 99.8%) of the capital stock of (a) 11 companies that currently operate 21 retail department stores, (b) nine companies (including BSS) that operate businesses that provide services to the Belk Companies and their subsidiaries, (c) one company that has historically operated a retail department store during its existence and whose assets now consist primarily of proceeds from the sale of its retail department store and (d) three companies that do not operate retail department stores, but own, directly and indirectly, capital stock in certain of the Belk Companies (collectively the "Surviving Belk Subsidiaries"). The Surviving Belk Subsidiaries are also listed on Annex A to this Proxy Statement/Prospectus. At each Special Meeting, the shareholders of each Belk Company will be asked to consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization, (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Belk Companies, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which each Belk Company (other than Belk-Simpson Company, Greenville, South Carolina ("Belk-Simpson")) will be merged with and into New Belk and New Belk Sub will be merged with and into Belk-Simpson, with Belk- Simpson becoming a wholly-owned subsidiary of New Belk (for each such Belk Company, the "Merger" and, collectively, the "Reorganization") and (b) the Merger of such Belk Company (other than Belk-Simpson) with and into New Belk and the Merger of New Belk Sub with and into Belk-Simpson. New Belk would be the surviving corporation upon consummation of the Reorganization, Belk-Simpson would survive its Merger as a wholly-owned subsidiary of New Belk and the Surviving Belk Subsidiaries would become wholly-owned subsidiaries of New Belk. Upon the consummation of each Merger, each outstanding share of common stock of each Belk Company (the "Belk Companies Common Stock") (other than treasury shares and shares entitled to dissenters' rights of appraisal and other than shares in Belk Companies owned by other Belk Companies which, with certain exceptions described herein, will be canceled) will be converted into a number of shares of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"), set forth in "Determination of Applicable Exchange Ratios" (for each Belk Company, the "Applicable Exchange Ratio"). All of the shares of New Belk Class A Common Stock to be received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. Upon consummation of the Reorganization, all of the Existing Belk Shareholders (with the exception of any Existing Belk Shareholders who exercise dissenters' rights of appraisal) will become stockholders of New Belk ("New Belk Stockholders"). The methodology used to determine the Applicable Exchange Ratio for each Belk Company was developed by BSS, as discussed more fully in this Proxy Statement/Prospectus under the sections entitled "Summary -- Determination of Applicable Exchange Ratios" and "Determination of Applicable Exchange Ratios." ------------------------ (continued on next page) SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN INFORMATION RELEVANT TO OWNERSHIP OF NEW BELK CLASS A COMMON STOCK AND THE REORGANIZATION. THE SHARES OF NEW BELK CLASS A COMMON STOCK TO BE ISSUED IN THE REORGANIZATION 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 PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. New Belk has filed a Registration Statement on Form S-4 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with the Securities and Exchange Commission (the "Commission") covering the shares of New Belk Class A Common Stock to be issued in connection with the Reorganization. This Proxy Statement/Prospectus and the Prospectus Supplement for each Belk Company also constitute the prospectus of New Belk filed as part of the Registration Statement relating to the issuance of shares of New Belk Class A Common Stock pursuant to the terms of the Reorganization. THE DATE OF THIS PROXY STATEMENT/PROSPECTUS AND EACH PROSPECTUS SUPPLEMENT IS AND THEY ARE FIRST BEING MAILED OR OTHERWISE DELIVERED TO EXISTING BELK SHAREHOLDERS ON OR ABOUT , 1998. <PAGE> 5 (continued from previous page) Consummation of the Reorganization is conditioned upon, among other things, the approval of each Merger by the percentage of outstanding shares of common stock of each Belk Company required under such company's governing documents and applicable state law. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Mergers for all of the Belk Companies in which they own common stock. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Mergers for all of such Belk Companies, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own common stock in such Belk Companies vote in favor of the Mergers for all of such Belk Companies, the vote by such persons, corporations and trusts in favor of the Mergers would be sufficient to approve the Mergers for 102 of the 112 Belk Companies under their governing documents and applicable state law. Your vote is important. Whether or not you intend to be present at the Special Meeting for your Belk Company, please complete, sign, date and return the accompanying proxy in the enclosed envelope. If you choose to attend the Special Meeting for your Belk Company, you may revoke your proxy and personally cast your votes. No person has been authorized to give any information or to make any representation other than as contained herein in connection with the offer of New Belk Class A Common Stock to be issued in connection with the Reorganization, and, if given or made, such information or representation must not be relied upon as having been authorized by New Belk, any of the Belk Companies or any other person. Neither this Proxy Statement/Prospectus nor the Prospectus Supplement for any Belk Company constitutes an offer to sell or a solicitation of an offer to purchase New Belk Class A Common Stock in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it would be unlawful. Neither the delivery of this Proxy Statement/Prospectus or the Prospectus Supplement for any Belk Company nor any distribution of such New Belk Class A Common Stock shall, under any circumstances, create any implication that the information contained herein is correct as of any time subsequent to the date hereof. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain matters discussed in this Proxy Statement/Prospectus and the Prospectus Supplements for each Belk Company constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements relate to anticipated financial performance, management's plans and objectives for future operations, growth strategies, business prospects, industry trends and other matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements in certain circumstances. The following discussion is intended to identify the forward-looking statements and certain factors that could cause future outcomes to differ materially from those set forth in the forward-looking statements. Forward-looking statements include the information concerning possible or assumed future results of operations of New Belk set forth under "Summary -- The Reorganization," "Summary -- Dividend Policy," "Risk Factors," "The Reorganization -- Surviving Belk Subsidiaries," "The Reorganization -- Recommendations of the Boards of Directors," "The Reorganization -- Reasons for the Reorganization," "Determination of Applicable Exchange Ratios," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Combined Condensed Financial Statements" and "Business of New Belk" and other statements in this Proxy Statement/Prospectus and the Prospectus Supplements for each Belk Company identified by words such as "anticipate," "estimate," "expect" and "believe," and include, in particular, the statements related to the expectations of management of BSS, the Belk Companies or New Belk as to the potential for New Belk to achieve (i) strengthened competitive position, (ii) enhanced opportunities for expansion, (iii) increased access to capital markets, (iv) cost efficiencies through consolidation, (v) increased shareholder value and (vi) possible future tax savings resulting from the Reorganization. Readers are cautioned that such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of New Belk following the Reorganization to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors may affect New Belk's operations, markets, products, services and prices. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause New Belk's actual results to differ materially from those contemplated in any forward-looking statement include, among others, the following: general economic and business conditions; changes in the competitive environment within the retail department store industry; the ability of New Belk to integrate the operations of the Belk Companies following the Reorganization; the ability to open new retail department stores on a profitable basis; the ability of New Belk to implement and to obtain anticipated cost savings related to the Reorganization and realize anticipated cost savings; the actual costs required to effect the Reorganization and to realize synergies and cost savings from the Reorganization; and changes in business strategy or development plans. AVAILABLE INFORMATION New Belk has filed with the Commission the Registration Statement under the Securities Act. Neither this Proxy Statement/Prospectus nor the Prospectus Supplement for any Belk Company contains all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information relating to New Belk and the shares of New Belk Class A Common Stock offered hereby, reference is hereby made to the Registration Statement, including the exhibits and schedules thereto, which may be inspected without charge at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of which may be obtained from the Commission at prescribed rates. Statements contained in this Proxy Statement/Prospectus or the Prospectus Supplement for any Belk Company as to the contents of any contract, agreement or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. As a result of the filing of the Registration Statement with the Commission, New Belk will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will be required to file periodic reports and other information with the Commission. Also in accordance with the requirements of the Exchange Act, New Belk intends to furnish its stockholders with annual reports containing audited consolidated financial statements and a report <PAGE> 6 thereon by independent public accountants and with quarterly reports for the first three quarters of each fiscal year containing unaudited summary financial information. Each Existing Belk Shareholder will receive a copy of this Proxy Statement/Prospectus and a copy of the Prospectus Supplement for each Belk Company in which such Existing Belk Shareholder owns of record shares of common stock. Prospectus Supplements for any Belk Company are available without charge, upon written or oral request, from Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704)357-1000. In order to ensure timely delivery of the documents prior to the Special Meetings, any such request should be made by , 1998. <PAGE> 7 TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> <C> PROXY STATEMENT..........................Cover PROSPECTUS...............................Cover SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS......................Inside Cover AVAILABLE INFORMATION.............Inside Cover SUMMARY................................. 1 The Parties........................... 1 Special Meetings...................... 2 Risk Factors.......................... 3 The Reorganization.................... 4 Determination of Applicable Exchange Ratios.............................. 9 Comparison of Shareholder Rights...... 10 Summary Historical Combined and Unaudited Pro Forma Combined Condensed Financial Information..... 11 Comparative Per Share Data............ 13 Markets and Market Prices............. 13 Dividend Policy....................... 13 RISK FACTORS............................ 14 Risks and Effects of the Reorganization...................... 14 Risks of Ownership of New Belk Common Stock............................... 16 Risks of Operations................... 17 Miscellaneous Risks................... 18 GENERAL INFORMATION..................... 19 SPECIAL MEETINGS........................ 19 Time, Date, Place and Purpose; Record Date and Shares Entitled to Vote.... 19 Vote Required; Security Ownership of Management.......................... 19 Solicitation and Revocation of Proxies............................. 20 THE REORGANIZATION...................... 20 History of the Belk Stores............ 20 Background of the Reorganization...... 21 Professional Advisors................. 22 Surviving Belk Subsidiaries........... 22 Non-Belk Stores....................... 22 Recommendation of Boards of Directors........................... 23 Reasons for the Reorganization........ 23 Consequences of Non-Participation in the Reorganization.................. 26 Terms of the Reorganization Agreement........................... 26 Effective Time of the Reorganization and Exchange of Shares.............. 28 Belk-Simpson Reorganization........... 28 Interests of Certain Persons in the Reorganization...................... 28 Accounting Treatment.................. 29 Certain Federal Income Tax Consequences........................ 29 Certain Conversion Requirements and Transfer Restrictions............... 30 Resales of New Belk Class A Common Stock............................... 31 Dissenters' Rights of Appraisal....... 31 Regulatory Approvals Required......... 32 DETERMINATION OF APPLICABLE EXCHANGE RATIOS................................ 32 Fairness Opinion...................... 37 NEW BELK................................ 39 CAPITALIZATION.......................... 39 </TABLE> <TABLE> <CAPTION> PAGE ---- <S> <C> <C> UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.................. 39 SELECTED HISTORICAL COMBINED AND UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION................. 46 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE BELK COMPANIES...... 48 General............................... 48 Results of Operations................. 49 Comparison of Nine Months Ended November 1, 1997 and November 2, 1996................................ 49 Comparison of Fiscal Years Ended February 1, 1997 and February 3, 1996................................ 50 Comparison of Fiscal Years Ended February 1, 1996 and January 31, 1995................................ 51 Seasonality and Quarterly Fluctuations........................ 52 Liquidity and Capital Resources....... 52 Recent Accounting Pronouncements...... 54 Impact of Inflation................... 54 BUSINESS OF NEW BELK.................... 54 Business Overview..................... 54 Business Strategy..................... 55 Growth Strategy....................... 55 Merchandising......................... 56 Marketing............................. 57 Buying................................ 58 Store Locations and Operations........ 58 Systems and Technology................ 59 Non-Retail Businesses................. 59 Industry and Competition.............. 60 Trademarks and Service Marks.......... 60 Employees............................. 60 Legal Proceedings..................... 60 MANAGEMENT.............................. 61 Directors............................. 61 Committees of the New Belk Board of Directors........................... 63 Compensation of Directors............. 63 Directors and Officers Insurance...... 63 Executive Officers.................... 64 Executive Compensation................ 65 Pension Plan.......................... 65 Supplemental Pension Plan............. 66 Belk Profit Sharing Plan.............. 66 Deferred Compensation Plan............ 66 Limitation of Liability and Indemnification..................... 67 CERTAIN RELATIONSHIPS AND TRANSACTIONS.......................... 68 General............................... 68 Certain Transactions with Management and Business Relationships Between the Belk Companies.................. 68 Indebtedness of Management............ 70 SECURITY OWNERSHIP...................... 71 </TABLE> i <PAGE> 8 <TABLE> <CAPTION> PAGE ---- <S> <C> <C> DESCRIPTION OF NEW BELK CAPITAL STOCK... 74 General............................... 74 New Belk Common Stock................. 74 Preferred Stock....................... 75 Transfer Agent and Registrar.......... 75 Certain Effects of Authorized but Unissued Stock...................... 75 Certain Charter and Bylaw Provisions.......................... 75 Directors' Liability.................. 76 COMPARISON OF RIGHTS OF HOLDERS OF BELK COMPANIES COMMON STOCK AND NEW BELK CLASS A COMMON STOCK.................. 77 EXPERTS................................. 77 LEGAL MATTERS........................... 77 THE BELK COMPANIES INDEX TO HISTORICAL COMBINED FINANCIAL STATEMENTS......... F-1 </TABLE> <TABLE> <CAPTION> PAGE ---- <S> <C> <C> ANNEX A THE BELK COMPANIES............. A-1 THE SURVIVING BELK SUBSIDIARIES................... A-3 ANNEX B PLAN AND AGREEMENT OF REORGANIZATION................. B-1 ANNEX C SHARES OF NEW BELK CLASS A COMMON STOCK ALLOCATED TO EACH EXISTING BELK SHAREHOLDER...... C-1 ANNEX D FAIRNESS OPINION OF WILLAMETTE MANAGEMENT ASSOCIATES, INC. ... D-1 PART II INFORMATION NOT REQUIRED IN PROSPECTUS..................... II-1 </TABLE> ii <PAGE> 9 SUMMARY The following is a summary of certain information contained, or incorporated by reference, elsewhere in this Proxy Statement/Prospectus and the related Supplement to this Proxy Statement/Prospectus for each Belk Company (for each Belk Company, the "Prospectus Supplement"). This summary is not intended to be complete and is qualified in its entirety by reference to, and should be read in conjunction with, the detailed information and financial statements appearing elsewhere in this Proxy Statement/Prospectus and the Prospectus Supplements. Each Existing Belk Shareholder is urged to read this Proxy Statement/Prospectus and the Prospectus Supplement related to each Belk Company of which it is a shareholder and the Annexes hereto and thereto in their entirety and with care. THE PARTIES THE BELK COMPANIES The Belk Companies operate the largest privately-owned department store business in the United States, with total revenues of $2.1 billion, on a pro forma combined basis, for the fiscal year ended February 1, 1997. The Belk Companies and their subsidiaries operate 225 retail department stores in 13 states in the southeastern United States. Belk stores sell top national brands of fashion apparel, shoes and accessories for men, women and children, as well as cosmetics, home furnishings, housewares, gifts and other types of merchandise. Belk stores also offer customers exclusive private label brands, such as Andhurst, Heiress, Home Accents, J. Khakis, Kim Rogers, Maryann's Boutique, Meeting Street, Saddlebred, Sweetbriar and 24/Seven. Certain larger Belk stores include hair salons, restaurants, optical centers and other amenities. Belk stores attempt to provide customers with the convenience of one-stop shopping, with a large merchandise mix and extensive offerings of brands, styles, assortments and sizes. The Belk Companies consist of (i) 100 companies that operate retail department stores, (ii) seven companies that historically operated retail department stores during their existence but whose assets now consist primarily of proceeds from the sale of their retail department stores, and (iii) five companies that operate businesses that provide services to other Belk Companies and their subsidiaries. The Belk Companies, either individually or in the aggregate, own 100% of the capital stock of the Surviving Belk Subsidiaries (except that the Belk Companies own 99.8% of the capital stock of BSS). New Belk will own 100% of the capital stock of the Surviving Belk Subsidiaries (except that New Belk will own 99.8% of the capital stock of BSS) upon consummation of the Reorganization. The Belk Companies and the Surviving Belk Subsidiaries are listed on Annex A to this Proxy Statement/Prospectus. Immediately following the Reorganization, New Belk intends to merge all of the Surviving Belk Subsidiaries with and into New Belk, with the exception of Archdale Advertising Agency, Inc., Belk Leasing Company, BSS, United Electronic Services, Inc. ("UES"), Belk Stores Mutual Insurance Company, The Belk Center, Inc. ("Belk Center") and Belk International, Inc. ("Belk International"), which will remain subsidiaries of New Belk. There is no trading market for shares of capital stock of any of the Belk Companies. The state of incorporation, date of incorporation, mailing address and telephone number of each Belk Company are set forth in the Prospectus Supplement for that Belk Company. Unless the context otherwise requires, all references herein to the Belk Companies include the Belk Companies and their respective subsidiaries. NEW BELK New Belk is a Delaware corporation that was organized in November 1997 for the purpose of consolidating the retail department store businesses now operated by the Belk Companies on the terms described in this Proxy Statement/Prospectus. New Belk has no assets or business and has not carried on any activities to date other than those incident to its formation and in connection with the Reorganization and the other transactions contemplated by the Reorganization Agreement. As a result of the Reorganization, the businesses currently conducted by the Belk Companies and their subsidiaries will become the business of New Belk. <PAGE> 10 The mailing address of New Belk's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number is (704) 357-1000. NEW BELK SUB New Belk Sub is a South Carolina corporation that was organized in November 1997 for the purpose of merging with and into Belk-Simpson as part of the Reorganization on the terms described in this Proxy Statement/Prospectus and in the Reorganization Agreement. New Belk Sub has no assets or business and has not carried on any activities to date other than those incident to its formation and in connection with the Reorganization. The mailing address of New Belk Sub's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number is (704) 357-1000. SPECIAL MEETINGS TIME, DATE, PLACE AND PURPOSE The Special Meeting of the shareholders of each Belk Company will be held on or about and , 1998 at the offices of BSS located at 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. The record date for each Belk Company is , 1998 (the "Record Date"). At the Special Meetings, the shareholders of each Belk Company (other than Belk- Simpson) will be asked to consider and vote upon a proposal to approve the Reorganization Agreement and the Merger of such Belk Company with and into New Belk. The shareholders of Belk-Simpson will be asked to consider and vote upon a proposal to approve the Reorganization Agreement and the Merger of New Belk Sub with and into Belk-Simpson. Upon consummation of the Reorganization, each outstanding share of Belk Companies Common Stock (other than treasury shares and shares of Belk Companies Common Stock owned by Existing Belk Shareholders who perfect dissenters' rights of appraisal under applicable state law and other than shares in Belk Companies owned by other Belk Companies which, with certain exceptions described herein, will be canceled at the Effective Time) will be converted into the right to receive that number of shares of New Belk Class A Common Stock determined in accordance with the Applicable Exchange Ratios set forth in "Determination of Applicable Exchange Ratios." All of the shares of New Belk Class A Common Stock to be received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. A copy of the Reorganization Agreement that has been executed by each of the Belk Companies, New Belk and New Belk Sub is attached hereto as Annex B. RECORD DATE AND SHARES ENTITLED TO VOTE Only holders of record of shares of Belk Companies Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting for each Belk Company and any adjournment thereof. As of the Record Date, each Belk Company had the number of shares issued and outstanding and the number of holders of record specified in the Prospectus Supplement for such Belk Company. VOTE REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT The presence in person or by proxy of the holders of a majority of the shares of common stock of each Belk Company outstanding and entitled to vote at such Belk Company's Special Meeting is necessary to constitute a quorum at such Belk Company's Special Meeting. The affirmative vote of the holders of a majority of the shares of common stock issued and outstanding as of the Record Date of certain Belk Companies and two-thirds of the shares of common stock issued and outstanding as of the Record Date of certain other Belk Companies, voting in person or by proxy, is necessary to approve the Reorganization Agreement and each Merger (in each case, the "Required Shareholder Vote"). The Required Shareholder 2 <PAGE> 11 Vote of each Belk Company is specified in Annex A. A failure to vote or an abstention will have the same effect as a negative vote. Holders of record of Belk Companies Common Stock on the Record Date are entitled to one vote per share on any matter that may properly come before the Special Meeting of the applicable Belk Company. As of the Record Date, Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Mergers for all of the Belk Companies in which they own common stock. If Mr. Belk and the other prospective directors of New Belk vote in favor of the Mergers for all of such Belk Companies, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own common stock in such Belk Companies vote in favor of the Mergers for all of such Belk Companies, the vote by such persons, corporations and trusts in favor of the Mergers would be sufficient to approve the Mergers for 102 of the 112 Belk Companies under their governing documents and applicable state law. These family members, controlled corporations and family trusts have voted in the past in a manner consistent with the member of their family who will serve as a director of New Belk. SOLICITATION AND REVOCATION OF PROXIES A form of proxy for each Belk Company's Special Meeting is enclosed with the Prospectus Supplement for such Belk Company being sent to such Belk Company's Existing Belk Shareholders. All shares of Belk Companies Common Stock held of record as of the Record Date represented by properly executed proxies will, unless such proxies have been previously revoked, be voted in accordance with the instructions indicated on such proxies. If no instructions are indicated, such shares will be voted FOR approval of the Reorganization Agreement and the Merger of the applicable Belk Company and in the discretion of the proxy holders as to any other matter which may properly come before the Special Meeting for such Belk Company. None of the Boards of Directors of the Belk Companies are aware of any other matters which may be presented for action at the Special Meeting for any of the Belk Companies, but if other matters do properly come before any of the Special Meetings, it is intended that shares represented by proxies in the accompanying forms will be voted by the persons named in the proxy in accordance with their best judgment. Any proxy given pursuant to this solicitation may be revoked in writing by the person giving it at any time before the proxy is exercised by giving notice to the Secretary of the applicable Belk Company or by submitting a proxy having a later date or by such person appearing at the Special Meeting for the applicable Belk Company and electing to vote in person. RISK FACTORS An investment in New Belk Class A Common Stock involves certain risks, including the following: (i) the particular Belk Companies participating in the Reorganization will be uncertain at the time of the Special Meetings; (ii) no third-party appraisals of the Belk Companies were obtained in connection with the Reorganization; (iii) the Applicable Exchange Ratios were not determined through negotiations with third parties; (iv) the Reorganization involves certain conflicts of interest; (v) the Fairness Opinion (as defined herein) contains certain qualifications; (vi) a single investment in one Belk Company may outperform an investment in the combined Belk Companies; (vii) certain risks are associated with a larger company; (viii) the Reorganization is expected to involve significant expenses; (ix) potential benefits of any alternatives to the Reorganization may not be realized; (x) certain New Belk Stockholders may enjoy considerable influence over New Belk; (xi) no public market exists for New Belk Common Stock (as defined herein); (xii) the New Belk Class A Common Stock is subject to certain conversion requirements and restrictions on transfer; (xiii) the New Belk Certificate and New Belk Bylaws contain substantial anti-takeover provisions; (xiv) the Belk Companies have no combined operating history; (xv) the retail industry is highly competitive; (xvi) the retail industry is highly seasonal; (xvii) the Belk Companies own and/or operate a substantial amount of real estate which could be subject to environmental risks; (xviii) New Belk will be dependent on senior management and other key personnel; (xix) New Belk will assume substantial liabilities in the 3 <PAGE> 12 Reorganization, some of which may be contingent or undisclosed; and (xx) New Belk may consummate the Reorganization without receiving all necessary consents from third parties. See "Risk Factors." THE REORGANIZATION RECOMMENDATION OF BOARDS OF DIRECTORS THE BOARD OF DIRECTORS OF EACH BELK COMPANY HAS DETERMINED THAT THE MERGER OF SUCH BELK COMPANY IS IN THE BEST INTERESTS OF SUCH BELK COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER OF SUCH BELK COMPANY PURSUANT TO THE REORGANIZATION AGREEMENT AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER OF SUCH BELK COMPANY PURSUANT TO THE REORGANIZATION AGREEMENT. For additional information with respect to the determination made by, and recommendation of, the Board of Directors of each Belk Company, see "The Reorganization -- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the applicable Prospectus Supplement for such Belk Company. REASONS FOR THE REORGANIZATION The Boards of Directors of the Belk Companies believe that significant benefits will result from the Reorganization. These expected benefits include the following: - Enhanced Competitiveness. The retail department store industry is highly competitive and, in the judgment of management, competition in the industry is likely to increase. Management believes that the companies in the retail department store industry that will be successful in this increasingly competitive environment will be larger companies that have an efficient legal structure, modern and attractive stores in key markets, effective inventory management, merchandise that appeals to their best customers, sophisticated management information systems, operating efficiencies and access to significant sources of capital. Management believes that the Reorganization will create a new Belk store organization that will be larger, stronger and more effective in competing against larger companies in the industry. See "The Reorganization -- Reasons for the Reorganization -- Enhanced Competitiveness." - Operational Integration. The Reorganization will combine all of the operations presently conducted separately by the Belk Companies into one operating entity. The integration of the separate operations of the Belk Companies will enable New Belk to: (i) avoid potential and actual conflicts of interest inherent in relationships among separate corporations having common directors and officers; (ii) take advantage of financing and investment opportunities that may not be as profitably pursued by the Belk Companies individually; and (iii) avoid duplication of administrative functions. See "The Reorganization -- Reasons for the Reorganization -- Operational Integration." - Enhanced Access to Capital. As of November 1, 1997, New Belk had, on a pro forma combined basis, total assets of approximately $1.5 billion and total debt of approximately $441 million. The Boards of Directors of the Belk Companies believe that New Belk's capital structure will provide New Belk with opportunities to refinance its existing debt on more favorable terms and will provide access to new sources of capital on terms more favorable than would be available to the Belk Companies individually. See "The Reorganization -- Reasons for the Reorganization -- Enhanced Access to Capital." - Growth Potential. The combination of all of the operations presently conducted by the Belk Companies separately will give the Existing Belk Shareholders an opportunity to participate in the growth of the retail department store industry through an ownership interest in a single business enterprise. See "The Reorganization -- Reasons for the Reorganization -- Growth Potential." 4 <PAGE> 13 - Potential Liquidity. New Belk has no present intention to list the shares of New Belk Class A Common Stock issued in the Reorganization or any other capital stock of New Belk on any national or regional exchange or to qualify shares of New Belk Class A Common Stock or any other capital stock for trading on any over-the-counter market. Nevertheless, the liquidity of the Existing Belk Shareholders' investment may increase because the New Belk Class A Common Stock issued in the Reorganization generally will be transferable, subject to the transfer restrictions and conversion requirements described herein, and the creation of a single business enterprise with a substantial number of stockholders may make it more likely that a trading market for shares of New Belk Common Stock will develop than for shares of common stock of any of the Belk Companies individually. See "The Reorganization -- Reasons for the Reorganization -- Potential Liquidity" and "Risk Factors -- Risks of Ownership of New Belk Class A Common Stock -- Certain Conversion Requirements and Restrictions on Transfer of New Belk Class A Common Stock." - Asset and Risk Diversification. Upon consummation of the Reorganization, New Belk will be substantially larger and more diversified than any of the Belk Companies individually. The size and geographic diversity of New Belk's business may translate into more consistent performance and stable returns for Existing Belk Shareholders than is now the case with an investment in a single Belk Company. The Reorganization will also allow the Existing Belk Shareholders to diversify the risks of an investment in a retail department store business over a broader group of assets and business operations and reduce exposure to the risks inherent in an investment in a single Belk Company. See "The Reorganization -- Reasons for the Reorganization -- Asset and Risk Diversification." - Expense and Tax Savings. Upon consummation of the Reorganization, management of BSS estimates that New Belk will realize considerable savings resulting from, among other things, (i) a reduction in finance costs due to reduced banking fees and interest expense, consolidation of credit lines and the consummation of more efficient financing transactions for the Belk Companies as a whole, such as securitization of receivables, (ii) more efficient cash management and (iii) tax savings from the use of previously unused operating losses and other tax benefits. Management estimates that such savings could amount to as much as $8 to $10 million in the first year following the Reorganization and $3 to $5 million on an annual basis thereafter. Management cannot determine with certainty, however, whether, when and to what extent such savings will actually be realized by New Belk. See "The Reorganization -- Reasons for the Reorganization -- Expense and Tax Savings." No assurance can be given, however, that all of these benefits, if any, will be achieved. See "Risk Factors." TERMS OF THE REORGANIZATION AGREEMENT General. The Reorganization Agreement provides that, following the approval of the Reorganization Agreement by the shareholders of each Belk Company and the satisfaction or waiver of the other conditions to the Merger of such Belk Company, at the Effective Time (as defined herein), such Belk Company (other than Belk-Simpson) will be merged with and into New Belk and New Belk Sub will be merged with and into Belk-Simpson, in each case in accordance with the provisions of the applicable state corporate law of such Belk Company ("Applicable State Corporate Law"). New Belk will be the surviving corporation in the Reorganization. As a result of the Reorganization, (i) the separate corporate existence of each Belk Company (other than Belk-Simpson) will cease, (ii) Belk-Simpson will survive its Merger with New Belk Sub as a wholly-owned subsidiary of New Belk and (iii) the Surviving Belk Subsidiaries will survive the Reorganization as wholly-owned subsidiaries of New Belk (except that New Belk will own 99.8% of the capital stock of BSS). Conversion of Shares. The Reorganization Agreement provides that each share of Belk Companies Common Stock issued and outstanding immediately before the Effective Time (other than treasury shares and shares of Belk Companies Common Stock held by Existing Belk Shareholders who perfect their Applicable State Law Appraisal Rights (as defined herein) and other than shares in Belk Companies owned by other Belk Companies which, with certain exceptions described herein, will be canceled at the Effective Time) and 5 <PAGE> 14 all rights in respect thereof will, at the Effective Time, be converted into and become exchangeable for a specified number of shares of New Belk Class A Common Stock determined in accordance with the Applicable Exchange Ratios. See "Determination of Applicable Exchange Ratios." All of the shares of New Belk Class A Common Stock to be received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. Board of Directors of New Belk. The Reorganization Agreement provides that, at the Effective Time, the Board of Directors of New Belk (the "New Belk Board") will consist of John M. Belk, Sarah Belk Gambrell, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, David Belk Cannon, J. Kirk Glenn, Jr., Karl G. Hudson, Jr., John A. Kuhne and B. Frank Matthews, II. John M. Belk will be the Chairman of the New Belk Board. Certificate of Incorporation and Bylaws of New Belk. The Reorganization Agreement provides that, at the Effective Time, the Certificate of Incorporation of New Belk and the Bylaws of New Belk will be amended and restated in the forms attached to the Reorganization Agreement as Exhibits B and C, respectively (as so amended, the "New Belk Certificate" and the "New Belk Bylaws"). Conditions to Consummation of the Reorganization. In addition to approval of the Reorganization Agreement by the Required Shareholder Vote for each Belk Company, consummation of each Merger is subject to the satisfaction or waiver of, among certain other customary conditions, the following: (i) no Existing Belk Shareholder will have elected to dissent from and exercise Applicable State Law Appraisal Rights with respect to any Merger; (ii) the Mergers of all of the Belk Companies (other than Belk-Simpson) with and into New Belk shall have been consummated in accordance with the terms of the Reorganization Agreement; (iii) the Merger of New Belk Sub with and into Belk-Simpson shall have been consummated in accordance with the terms of the Reorganization Agreement; (iv) Belk-Simpson shall have completed the plan of reorganization agreed to between New Belk and Belk-Simpson (the "Belk-Simpson Plan of Reorganization") that will result in the assets of Belk-Simpson consisting solely of assets related to and necessary for the conduct of the retail department store business; (v) the Registration Statement shall be effective; and (vi) the applicable waiting period shall have expired under the Hart-Scott-Rodino Act of 1976, as amended (the "HSR Act"). Amendment and Waiver. The Reorganization Agreement may be amended by mutual agreement of the parties thereto. Any amendment to the Reorganization Agreement must be in writing and signed by the parties thereto. Any provision of the Reorganization Agreement may be waived in writing at any time by the party that is, or whose shareholders are, entitled to the benefits of such provision. Termination. The Reorganization Agreement may be terminated prior to the Effective Time: (i) with respect to the Merger of any particular Belk Company by mutual written agreement between New Belk and such Belk Company; (ii) by a Belk Company with respect to its Merger or by New Belk with respect to such Merger or the Reorganization as a whole if an event occurs that renders impossible the satisfaction of the conditions to such party's obligations to consummate the Merger, unless the failure of such occurrence shall be due to the failure of the party seeking to terminate the Reorganization Agreement to perform or observe its covenants, agreements and conditions required to be observed by it prior to the Effective Time; (iii) by New Belk with respect to the Merger of any particular Belk Company or the Reorganization as a whole if the shareholders of such Belk Company do not approve the Reorganization Agreement; (iv) by New Belk with respect to the Merger of any particular Belk Company or the Reorganization as a whole if the Board of Directors of such Belk Company withdraws, or modifies in a manner adverse to New Belk, its recommendation that the Reorganization Agreement be approved; (v) by a Belk Company with respect to its Merger or by New Belk with respect to such Merger or the Reorganization as a whole if the Effective Time has not occurred by June 1, 1998; and (vi) by New Belk with respect to the Merger of any particular Belk Company or the Reorganization as a whole if any Existing Belk Shareholder owning shares in such Belk Company shall have elected to dissent from and exercise his Applicable State Law Appraisal Rights with respect to such Merger. Covenants. In addition to customary covenants regarding conduct of business pending consummation of the Reorganization, each Belk Company has agreed that it will only pay dividends for fiscal year 1998 in 6 <PAGE> 15 amounts consistent with dividends paid for prior years, subject to normal working capital requirements. Moreover, no Belk Company may, without the prior written consent of New Belk, pay dividends for fiscal year 1998 in an aggregate amount greater than the aggregate amount paid in dividends for fiscal year 1997. Fees and Expenses. BSS will pay all fees, costs and expenses incurred in connection with the Reorganization Agreement, the Reorganization and the transactions contemplated thereby (the "Reorganization Expenses"). EFFECTIVE TIME OF THE REORGANIZATION AND EXCHANGE OF SHARES Effective Time of the Reorganization. The Reorganization and each Merger consummated pursuant to the Reorganization will become effective upon the latest to occur of the filing of the certificates of merger or articles of merger, as applicable, relating thereto with the Secretaries of State of Delaware and the applicable states of incorporation of the Belk Companies (the "Effective Time"). The Reorganization Agreement provides that the parties thereto will cause such certificates of merger or articles of merger, as applicable, to be filed as soon as practicable after all of the conditions to consummation of each Merger contemplated thereby have been satisfied or waived. Exchange of Belk Companies Stock Certificates. Prior to the Effective Time, instructions and a letter of transmittal will be furnished to all Existing Belk Shareholders for use in exchanging their stock certificates for certificates evidencing the shares of New Belk Class A Common Stock that they will be entitled to receive as a result of the Reorganization. EXISTING BELK SHAREHOLDERS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL INSTRUCTIONS AND THE LETTER OF TRANSMITTAL ARE RECEIVED. INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION The Reorganization and the recommendation of the Boards of Directors of the Belk Companies involve conflicts of interests. See "Risk Factors -- Risks and Effects of the Reorganization -- Conflicts of Interest." Such conflicts of interest may arise from the fact that (i) certain executive officers now serve in management of more than one Belk Company which may limit the ability of these officers to act independently and in the best interests of each separate Belk Company for which they serve in management, (ii) certain executive officers and directors of the Belk Companies are expected to become involved in management of New Belk and (iii) the Reorganization will consolidate the holdings of John M. Belk, Sarah Belk Gambrell and other Belk family members in the combined enterprise and give Mr. Belk, Mrs. Gambrell and such other Belk family members substantial control over the operations of New Belk. These relationships cause Mr. Belk, Mrs. Gambrell and such other Belk family members to have interests in the Reorganization that are different from, or in addition to, the interests of other Existing Belk Shareholders. Each Board of Directors considered these conflicts of interest when determining whether to recommend the Reorganization Agreement and its Merger to the Existing Belk Shareholders. See "The Reorganization -- Interests of Certain Persons in the Reorganization." ACCOUNTING TREATMENT The Reorganization will be accounted for using the purchase method of accounting. See "The Reorganization -- Accounting Treatment." CERTAIN FEDERAL INCOME TAX CONSEQUENCES New Belk expects that each Merger (other than the Merger of New Belk Sub with and into Belk-Simpson (the "Belk-Simpson Merger")) will constitute a tax-free reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code") and that the Belk-Simpson Merger will constitute a tax-free transaction under Section 351(a) of the Code. Generally, no gain or loss should be recognized for federal income tax purposes by the Existing Belk Shareholders, with the exception of Existing Belk Shareholders who elect to exercise their Applicable State Law Appraisal Rights. New Belk has received an opinion of King & Spalding, counsel to New Belk, to the effect that, subject to the assumptions, qualifications and limitations set forth therein, each of the Mergers (other than the Belk-Simpson Merger) 7 <PAGE> 16 will qualify as a tax-free reorganization for federal income tax purposes and the Belk-Simpson Merger will qualify as a tax-free transaction under Section 351(a) of the Code. See "The Reorganization -- Certain Federal Income Tax Consequences." CERTAIN CONVERSION REQUIREMENTS AND TRANSFER RESTRICTIONS The shares of New Belk Class A Common Stock to be issued to the Existing Belk Shareholders in connection with the Reorganization are convertible into shares of Class B Common Stock, par value $.01 per share, of New Belk ("New Belk Class B Common Stock" and, together with New Belk Class A Common Stock, the "New Belk Common Stock"), in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class B Common Stock are identical to shares of New Belk Class A Common Stock in all respects, with the exception that holders of New Belk Class B Common Stock are entitled to one vote per share on all matters which are submitted to the New Belk Stockholders for their vote or approval while holders of New Belk Class A Common Stock are entitled to 10 votes per share on all such matters. The holders of both classes of New Belk Common Stock are entitled to vote and will vote together as a single class on all matters presented to the New Belk Stockholders for their vote or approval except as otherwise required by Delaware law. See "Description of New Belk Capital Stock." Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders (as defined herein). Upon a transfer of a share of New Belk Class A Common Stock to any person other than a Class A Permitted Holder, each such share of New Belk Class A Common Stock so transferred will be automatically converted into one share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert to New Belk Class B Common Stock in the event such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. See "The Reorganization -- Certain Conversion Requirements and Transfer Restrictions." RESALES OF NEW BELK CLASS A COMMON STOCK Shares of New Belk Class A Common Stock to be issued to the Existing Belk Shareholders in connection with the Reorganization will be freely transferable under the Securities Act (but will still be subject to compliance with applicable conversion requirements and transfer restrictions), except for shares issued to any Existing Belk Shareholder who, at the time of the Reorganization, may be deemed to be an "affiliate" of New Belk within the meaning of Rule 145 under the Securities Act ("Rule 145"). In general, affiliates of New Belk include the executive officers and directors of, and any other person or entity who controls, is controlled by or is under common control with, New Belk. Rule 145 imposes, among other things, certain restrictions upon the resale of securities received by affiliates in connection with certain reclassifications, mergers, consolidations or asset transfers. These restrictions will consist of volume and manner of sale restrictions on the resale of New Belk Class A Common Stock issued to such persons or entities. Shares of New Belk Class B Common Stock will also be freely transferable under the Securities Act, except for those restrictions on transferability under Rule 145 applicable to New Belk Class B Common Stock owned by New Belk Stockholders who may be deemed to be affiliates of New Belk. New Belk may place legends on certificates representing shares of New Belk Common Stock that are to be issued to such Existing Belk Shareholders in the Reorganization to reflect the restrictions on transferability under Rule 145 applicable to affiliates of New Belk. See "The Reorganization -- Resales of New Belk Class A Common Stock" and "Description of New Belk Capital Stock -- New Belk Common Stock." DISSENTERS' RIGHTS OF APPRAISAL Each Existing Belk Shareholder is entitled to dissenters' rights of appraisal and, if the Merger relating to such Existing Belk Shareholder's Belk Company is consummated, to receive payment in cash for the statutory "fair value" of his shares (excluding any element of value arising from the accomplishment or expectation of the Reorganization) upon compliance with the provisions of state law applicable to each such Belk Company (the "Applicable State Law Appraisal Rights"). See "The Reorganization -- Dissenters Rights of Appraisal." 8 <PAGE> 17 The Applicable State Law Appraisal Rights for each such Belk Company are summarized in the Prospectus Supplement for such Belk Company and the full text of the Applicable State Law Appraisal Rights for each Belk Company is set forth in Annex A attached to the applicable Prospectus Supplement. It is a condition to the obligation of New Belk to consummate the Merger with each Belk Company and the Reorganization as a whole that no Existing Belk Shareholder exercises his Applicable State Law Appraisal Rights. The exercise of Applicable State Law Appraisal Rights by any Existing Belk Shareholder will have the effect of (i) requiring New Belk to waive the condition that no Existing Belk Shareholder exercise his Applicable State Law Appraisal Rights or (ii) allowing New Belk to terminate the Reorganization Agreement. See "The Reorganization -- Terms of the Reorganization Agreement." REGULATORY APPROVALS REQUIRED Under the HSR Act and the rules promulgated thereunder by the Federal Trade Commission (the "FTC"), the Reorganization may not be consummated unless notification has been given and certain information has been furnished to the FTC and the Antitrust Division of the Department of Justice (the "Antitrust Division") and the waiting period has expired or been terminated. Pursuant to the HSR Act, on December 19, 1997, John M. Belk and certain Belk Companies filed a Notification and Report Form with the FTC and the Antitrust Division for review in connection with the Reorganization. The 30-day waiting period under the HSR Act applicable to the Reorganization will expire on January 18, 1998, unless terminated early or extended. There can be no assurance that the Reorganization will not be investigated or opposed by the FTC or the Antitrust Division. See "The Reorganization -- Regulatory Approvals Required." DETERMINATION OF APPLICABLE EXCHANGE RATIOS The Applicable Exchange Ratios for the Mergers have been calculated to take into account the different financial and operating characteristics of each Belk Company. Although the Belk Companies operate similar businesses, the Belk Companies are separate legal entities governed by separate Boards of Directors. Over time, the Boards of Directors of the Belk Companies have made their own decisions regarding their respective businesses, including decisions regarding store operations, capital structures, investments in other Belk Companies and other securities, capital expenditures, the level of distributions made to its equity owners and the retention of cash in the businesses. As a result of these decisions, the Belk Companies generally have different financial and operating characteristics that make it unlikely that using a single method of determining the value of each of the Belk Companies for purposes of calculating the Applicable Exchange Ratios would be fair to all of the Existing Belk Shareholders. In addition, a number of the Belk Companies own equity interests in other Belk Companies. As a result of these investments, the value of each Belk Company consists not only of the value of its retail department store operations or other directly held assets but also the value of its equity interests in other Belk Companies. To determine exchange ratios for the Mergers that would take into account the different financial and operating characteristics of the Belk Companies and the investments by Belk Companies in other Belk Companies, BSS developed a methodology to determine the exchange ratios based upon the "Net Relative Value" (as defined herein) of each Belk Company. This methodology is described in more detail in "Determination of Applicable Exchange Ratios." BSS first determined five different values for the department store operations and other directly held assets of each Belk Company based upon five valuation formulas and attributed to each Belk Company with continuing operations the highest of the five values resulting from the application of these formulas (the Applicable Exchange Ratio for each Belk Company with discontinued operations was determined by using the Adjusted Book Equity Valuation Formula (as defined herein)). BSS then adjusted the value attributed to each Belk Company by adding to the value attributed to that Belk Company the proportionate share (based upon percentage ownership) of the value attributed to each other Belk Company, if any, in which that Belk Company owns any equity interest, resulting in a "Total Relative Value." The "Total Relative Value" was then reduced by the proportionate share (based upon percentage ownership) of the value of that Belk Company owned by any other Belk Company. The value resulting from such methodology is the "Net Relative Value" of that Belk Company. The effect of these adjustments is to 9 <PAGE> 18 allocate to the individual shareholders of each Belk Company both the value of the assets of that Belk Company and the value of that Belk Company's interest in other Belk Companies. After determining the Net Relative Value of each Belk Company, BSS calculated the percentage that the Net Relative Value of each Belk Company represents of the total of the Net Relative Values of all of the Belk Companies. The Applicable Exchange Ratio for the Merger of each Belk Company is then based upon the percentage of the total of the Net Relative Values of all of the Belk Companies attributed to that Belk Company. The Applicable Exchange Ratio for each Belk Company is set forth in "Determination of Applicable Exchange Ratios" herein and the Prospectus Supplement for each Belk Company describes the calculation of the Applicable Exchange Ratio for the Merger of such Belk Company. The methodology used to determine the Applicable Exchange Ratio for each Belk Company is referred to herein as the "Valuation Process." FAIRNESS OPINION On November 25, 1997 Willamette Management Associates, Inc. ("Willamette"), an independent financial advisory firm with substantial experience in valuing retail businesses, delivered its opinion (the "Fairness Opinion") to each of the Belk Companies and their directors that, based upon and subject to its analysis and assumptions and limiting conditions, the Valuation Process is reasonable and is fair, from a financial point of view, to the Existing Belk Shareholders. For a summary of the assumptions and qualifications that limit the scope of the Fairness Opinion, see "Determination of Applicable Exchange Ratios -- Fairness Opinion." The full text of the Fairness Opinion, which sets forth the assumptions made, matters considered and limits of review undertaken in connection with the Fairness Opinion, is attached as Annex D to this Proxy Statement/Prospectus and is incorporated herein by reference. Existing Belk Shareholders are urged to read the Fairness Opinion in its entirety. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Reorganization, Existing Belk Shareholders will receive shares of New Belk Class A Common Stock. For a description of the New Belk Class A Common Stock, see "Description of New Belk Capital Stock -- New Belk Common Stock." For a comparison of the material differences between the rights of the holders of New Belk Class A Common Stock and the holders of common stock of a Belk Company, see "Comparison of Rights of Holders of Belk Companies Common Stock and New Belk Class A Common Stock" herein and "Comparison of Shareholder Rights" in the applicable Prospectus Supplement for each such Belk Company. 10 <PAGE> 19 SUMMARY HISTORICAL COMBINED AND UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION The summary historical combined financial information of the Belk Companies presented below under the captions "Selected Statement of Income Data" and "Selected Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended February 1, 1997, has been derived from the historical combined financial statements of the Belk Companies. The historical combined financial statements as of February 3, 1996 and February 1, 1997 and for each of the years in the three-year period ended February 1, 1997 have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Such historical combined financial statements, and the report thereon, are included elsewhere in this Proxy Statement/Prospectus. The summary historical combined information of the Belk Companies presented below for the nine-month periods ended November 2, 1996 and November 1, 1997, and as of November 1, 1997, has been derived from the unaudited historical combined financial statements of the Belk Companies included elsewhere in this Proxy Statement/Prospectus. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. The information presented below under the caption "Selected Operating Data" is unaudited. The following summary unaudited pro forma combined condensed financial information of New Belk has been derived from, or prepared on a basis consistent with, the unaudited pro forma combined condensed financial statements included elsewhere in this Proxy Statement/Prospectus. The pro forma information gives effect to the Reorganization as if it had occurred at the beginning of the first period presented. This data is presented for illustrative purposes only and is not indicative of the combined results of operations or financial position that would have occurred if the Reorganization had been consummated at the beginning of each period presented or on the dates indicated, nor is it necessarily indicative of the future operating results or financial position of New Belk. 11 <PAGE> 20 <TABLE> <CAPTION> HISTORICAL ------------------------------------------------------------------- FISCAL YEAR ENDED ------------------------------------------------------------------- FEBRUARY 2, FEBRUARY 1, JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1993(1) 1994(1) 1995(1) 1996(1) 1997(1)(2) ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> <C> <C> SELECTED STATEMENT OF INCOME DATA: Revenues............. $1,661,942 $1,674,373 $1,694,422 $1,685,470 $1,772,613 Cost of goods sold... 1,131,154 1,151,942 1,151,713 1,149,270 1,205,687 Depreciation and amortization........ 41,740 44,104 46,762 50,832 54,198 Income from continuing operations.......... 54,348 40,715 46,893 42,518 64,497 Income from discontinued operations(4)....... 1,445 1,687 1,731 1,298 36,873 Net income........... 55,793 53,923 48,624 43,816 101,370 Income from continuing operations per share............... n/a n/a n/a n/a n/a Average number of shares outstanding......... n/a n/a n/a n/a n/a SELECTED BALANCE SHEET DATA: Accounts receivable, net................. 275,141 274,011 262,986 263,161 335,914 Merchandise inventories......... 347,619 356,000 349,610 365,902 425,415 Working capital...... 479,788 498,845 514,228 423,543 442,753 Total assets......... 1,152,706 1,152,071 1,159,735 1,260,979 1,358,900 Short-term debt...... 21,206 20,711 11,000 116,327 187,272 Long-term debt....... 267,609 240,923 203,742 169,264 207,496 Capitalized lease obligations......... 12,268 11,487 10,708 9,177 8,514 Shareholders' equity.............. 635,705 672,498 717,284 748,706 672,016 Book value per share............... n/a n/a n/a n/a n/a SELECTED OPERATING DATA: Number of stores at end of period....... 227 225 221 216 250 Comparable store net revenue increases (decreases)......... 2.7% 4.7% 2.4% (2.3)% 2.3% <CAPTION> HISTORICAL PRO FORMA ------------------------- --------------------------- FISCAL NINE YEAR MONTHS NINE MONTHS ENDED ENDED ENDED ------------------------- ------------- ----------- NOVEMBER 2, NOVEMBER 1, FEBRUARY 1, NOVEMBER 1, 1996(1) 1997(1) 1997(1)(2)(3) 1997(1)(3) ----------- ----------- ------------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> <C> SELECTED STATEMENT OF INCOME DATA: Revenues............. $1,138,615 $1,342,918 $2,060,236 $1,388,317 Cost of goods sold... 774,294 907,654 1,400,146 938,014 Depreciation and amortization........ 47,908 39,608 49,888 40,929 Income from continuing operations.......... 22,613 18,376 56,951 16,918 Income from discontinued operations(4)....... (3,567) (5,143) n/a n/a Net income........... 19,046 13,233 n/a n/a Income from continuing operations per share............... n/a n/a 0.95 0.28 Average number of shares outstanding......... n/a n/a 60,000,008 60,000,008 SELECTED BALANCE SHEET DATA: Accounts receivable, net................. 312,450 325,954 n/a 338,491 Merchandise inventories......... 528,589 527,687 n/a 547,158 Working capital...... 354,097 469,456 n/a 484,207 Total assets......... 1,524,065 1,435,997 n/a 1,510,297 Short-term debt...... 316,864 186,766 n/a 197,740 Long-term debt....... 345,452 231,841 n/a 231,841 Capitalized lease obligations......... 8,683 11,312 n/a 11,312 Shareholders' equity.............. 590,580 679,615 n/a 767,315 Book value per share............... n/a n/a n/a 12.79 SELECTED OPERATING DATA: Number of stores at end of period....... 253 225(5) 250 225(5) Comparable store net revenue increases (decreases)......... 2.0% 1.7% 2.2% 1.3% </TABLE> - --------------- All years include 52 weeks (364 days) except that the fiscal year ended February 1, 1997 includes 365 days, the fiscal year ended February 3, 1996 includes 368 days, and the fiscal year ended February 2, 1993 includes 371 days. (1) The historical financial information includes financial information for Belk-Simpson on an equity basis. The pro form financial information includes the financial information of Belk-Simpson on a consolidated basis. (2) In November 1996, Belk of Virginia, Inc. acquired a controlling interest in various corporations that owned and operated 42 Leggett stores. The historical financial information for the fiscal year ended February 1, 1997 includes only three months of financial information for the acquired Leggett stores. The pro forma financial information for the fiscal year ended February 1, 1997 includes a full fiscal year of financial information for the Leggett stores. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock expected to be outstanding upon consummation of the Reorganization, which includes the one share of New Belk Class A Common Stock issued in connection with the formation of New Belk, but excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Applicable Exchange Ratios." (4) Income from discontinued operations represents the operating results and gain on the sale of BAC, Inc. ("BAC"), which owned and operated a mall in Charlotte, North Carolina and the operating results of TAGS, LLC ("TAGS"), which owned and operated outlet stores. (5) Excludes 13 stores operated as TAGS Stores (as defined herein) closed in December 1997. 12 <PAGE> 21 COMPARATIVE PER SHARE DATA Certain historical earnings and book value per share data and certain pro forma equivalent per share data, giving effect to the Reorganization for and as of the periods therein presented, for each Belk Company are set forth in the Prospectus Supplement for that Belk Company. The data set forth in each Prospectus Supplement should be read in conjunction with the unaudited combined pro forma financial statements of New Belk, including the notes thereto, included elsewhere in this Proxy Statement/Prospectus and the financial statements of the applicable Belk Company included in the Prospectus Supplement for that Belk Company. MARKETS AND MARKET PRICES Each of the Belk Companies is privately held, and there is no established market for any of the Belk Companies Common Stock. The number of holders of record of the common stock of each Belk Company and the dividends paid by such Belk Company during the fiscal year ended February 1, 1997 are specified in the Prospectus Supplement for such Belk Company. New Belk is privately held, and there is no established market for New Belk Class A Common Stock. There is only one holder of record of New Belk Class A Common Stock and only one share of New Belk Class A Common Stock issued and outstanding. No dividends have been declared by New Belk on the New Belk Class A Common Stock. Future payments of dividends by New Belk will depend upon New Belk's results of operations, financial condition, cash requirements and other factors deemed relevant by the Board of Directors. See "-- Dividend Policy." DIVIDEND POLICY Each Belk Company is expected to pay dividends for the fiscal year ended January 31, 1998 in amounts consistent with dividends paid with respect to prior fiscal years. The Reorganization Agreement permits the Belk Companies to pay dividends in these amounts prior to the Effective Time with respect to fiscal year 1998, subject to the requirement that each Belk Company retain cash sufficient to meet normal working capital requirements and not pay dividends with respect to fiscal year 1998 in an aggregate amount in excess of the amount paid in dividends with respect to fiscal year 1997. Subject to approval of its Board of Directors, New Belk expects to pay annual dividends with respect to fiscal year 1999 in amounts which will represent approximately 25% of New Belk's net income, excluding unusual or infrequent items, for fiscal year 1999. The actual amount of dividends paid with respect to fiscal year 1999 and each subsequent year will be determined at the sole discretion of the New Belk Board based upon New Belk's results of operations, financial condition, cash requirements and other factors deemed relevant by the New Belk Board. 13 <PAGE> 22 RISK FACTORS An investment in the New Belk Class A Common Stock offered hereby involves certain risks. In addition to the other information in this Proxy Statement/Prospectus and the applicable Prospectus Supplements, prospective investors should carefully consider the following factors in evaluating New Belk and its business before voting on the Reorganization Agreement and the Merger for each Belk Company. RISKS AND EFFECTS OF THE REORGANIZATION Uncertainty of Participating Belk Companies at the Time of Voting. The precise number of shares of New Belk Class A Common Stock received by each Existing Belk Shareholder depends on the specific number and identity of the Belk Companies participating in the Reorganization. The Belk Companies that will participate in the Reorganization will not be determined until the conclusion of the Special Meetings. New Belk's obligation to consummate the Reorganization is conditioned on a number of factors, including the requirements that (i) no Existing Belk Shareholder shall exercise his Applicable State Law Appraisal Rights with respect to any of the Belk Companies and (ii) the Required Shareholder Vote for each Belk Company is obtained. See "The Reorganization -- Terms of the Reorganization Agreement." There can be no assurance that Existing Belk Shareholders will not exercise their Applicable State Law Appraisal Rights. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Mergers for all of the Belk Companies in which they own common stock. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Mergers for all of such Belk Companies, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own common stock in such Belk Companies vote in favor of the Mergers for all of such Belk Companies, the vote by such persons, corporations and trusts in favor of the Mergers would be sufficient to approve the Mergers for 102 of the 112 Belk Companies under their governing documents and applicable state law. There can be no assurance that any of the Belk Companies will approve the Reorganization Agreement and the Merger for such Belk Company. Because the number and identity of the Belk Companies that will participate in the Reorganization will not be known until the Special Meetings have concluded, the resulting size, business and leverage, among other things, of New Belk cannot be finally determined prior to the conclusion of the Special Meetings. To the extent certain Belk Companies do not participate in the Reorganization, and New Belk elects to waive the condition to consummation of the Reorganization that all of the Mergers are consummated, the Existing Belk Shareholders who do participate in the Reorganization will receive shares of New Belk Class A Common Stock that may have an aggregate value that is less than the value of the shares that such Existing Belk Shareholders would have received if all of the Belk Companies had participated in the Reorganization. Method of Determining Applicable Exchange Ratios; No Third Party Appraisals. The Applicable Exchange Ratios were determined on the basis of the Net Relative Values of the Belk Companies, which constitute for each Belk Company with continuing operations the highest of five values determined by five different valuation formulas, adjusted as described herein (the Applicable Exchange Ratio for each Belk Company with discontinued operations was determined by using the Adjusted Book Equity Valuation Formula). The Applicable Exchange Ratios were not determined on the basis of a fair market valuation of any Belk Company or its assets or business. In addition, there was no valuation of the Belk Companies through negotiations with prospective purchasers. Willamette was retained to evaluate only the reasonableness of the Valuation Process and the fairness of the Valuation Process, from a financial point of view, to the Existing Belk Shareholders. Accordingly, there can be no assurance that the value of the New Belk Class A Common Stock to be received by the Existing Belk Shareholders of a Belk Company will be representative of the actual value of the assets or business of that Belk Company if the assets or business of that Belk Company were determined by appraisal or if that Belk Company were to be sold. In addition, because the Applicable Exchange Ratios were calculated based on the financial statements of each of the Belk Companies for the fiscal year ended February 1, 1997, they do not take into account the results of operation of any Belk Company after such date. See "Determination of Applicable Exchange Ratios." Absence of Arms-Length Negotiations. The terms and conditions of the Reorganization are not the result of arms-length negotiations between New Belk and the Belk Companies. The terms and conditions of 14 <PAGE> 23 the Reorganization were proposed by BSS and approved by the Boards of Directors of the Belk Companies. No independent representative was retained to negotiate on behalf of any individual Belk Company. If an independent representative had been retained, the terms and conditions of the Reorganization may have been more favorable to some or all of the Existing Belk Shareholders. Conflicts of Interest. The Reorganization and the recommendation of the Boards of Directors of the Belk Companies involve certain conflicts of interest. In managing the affairs of the Belk Companies, each member of the Board of Directors of a Belk Company is required to act in good faith and with an undivided duty of loyalty to such Belk Company and its Existing Belk Shareholders. Certain executive officers and directors of the Belk Companies have conflicts of interest in recommending the Reorganization to the Existing Belk Shareholders because they serve as members of the Boards of Directors of multiple Belk Companies. These common directorships may affect the ability of these executive officers and directors to independently assess whether the terms of the Reorganization are fair to the Existing Belk Shareholders of each Belk Company for which they serve as directors. In addition, certain of such executive officers and directors, including John M. Belk, Thomas M. Belk, Jr., H.W. McKay Belk and John R. Belk, will serve as executive officers and directors of New Belk. These conflicts of interest could result in decisions that do not fully reflect the interests of each Existing Belk Shareholder in each Belk Company. See "The Reorganization -- Interests of Certain Persons in the Reorganization." Qualifications to Fairness Opinion. Willamette has provided the Fairness Opinion in which it addresses the reasonableness of the Valuation Process and the fairness, from a financial point of view, of the Valuation Process to the Existing Belk Shareholders. The Fairness Opinion, however, is specifically limited in scope and contains a number of material qualifications and assumptions. In rendering the Fairness Opinion, Willamette was not requested to, and states that it did not, select the method of determining the Applicable Exchange Ratio for any Merger, establish the value of any Belk Company, make any recommendations to New Belk or any Belk Company with respect to whether to approve or reject the Reorganization or express any opinion as to: (i) the impact of the Reorganization on Existing Belk Shareholders who do not participate in the Reorganization; (ii) the tax consequences of the Reorganization for the Existing Belk Shareholders or New Belk Stockholders; (iii) the capital structure of New Belk or its impact on the financial performance of New Belk; (iv) the fairness of the Reorganization Expenses borne by BSS; (v) whether or not alternative methods of determining the relative amounts of New Belk Class A Common Stock to be issued also would have provided fair results or results substantially similar to those of the allocation methodology used; or (vi) the fairness or advisability of any alternatives to the Reorganization. In rendering the Fairness Opinion, Willamette has relied, without independent verification, on the accuracy and completeness of all financial information provided to it by BSS or contained in financial statements of the Belk Companies used by it for purposes of preparing the Fairness Opinion. See "Determination of Applicable Exchange Ratios -- Fairness Opinion." These qualifications to the Fairness Opinion may diminish its usefulness to the Existing Belk Shareholders in determining whether to approve or reject the Mergers related to the Belk Companies in which they own shares of common stock because the Fairness Opinion does not address all factors and circumstances that may be relevant in evaluating the fairness of such Mergers or the Reorganization as a whole. Single Belk Company May Outperform the Business of Belk Companies as a Whole. The Reorganization will combine the businesses of all of the Belk Companies into a single organization. An investment in an existing Belk Company, over time, may outperform an investment in all of the Belk Companies combined in the Reorganization. An Existing Belk Shareholder with an investment in any such Belk Company who exchanges shares of Belk Companies Common Stock for New Belk Class A Common Stock may receive a lower return on an investment in New Belk than such Existing Belk Shareholder would have received from his investment in the single Belk Company. Larger Asset Pool Risks. Existing Belk Shareholders participating in the Reorganization may own an interest in a combined company that will own or operate assets or lines of business that were not formerly owned or operated by the Belk Company in which they now have an interest. Consequently, such Existing Belk Shareholders will be subject to the risks that are associated with those assets and businesses and any future adverse developments with respect to those assets and businesses. 15 <PAGE> 24 Expenses of the Reorganization. The Reorganization Expenses are estimated to be approximately $4.75 million. BSS will pay all Reorganization Expenses whether or not the Reorganization is consummated. See "The Reorganization -- Reorganization Expenses." Foregoing Potential Benefits of Alternatives to the Reorganization. The only alternative to the Reorganization considered by the Belk Companies' Boards of Directors was the continuation of the Belk Companies as separate business entities. Such a strategy would not expose the Existing Belk Shareholders to the risks associated with the Reorganization and would not offer the Existing Belk Shareholders the potential benefits of the Reorganization. An alternative to the Reorganization that was not considered by BSS and the Belk Companies' Boards of Directors would be for each Belk Company to sell its assets, distribute the net proceeds of such sale to the shareholders of that Belk Company and thereafter dissolve. Such a sale would permit the Belk Companies to value each Belk Company's assets through negotiations with prospective purchasers (in many cases unrelated third parties), making it unnecessary to rely upon the Net Relative Values of the Belk Companies to determine the Applicable Exchange Ratios. Such a sale would result in substantial taxable income for all of the Existing Belk Shareholders. Potential Influence of Certain Stockholders. Following the Reorganization, New Belk's executive officers, directors and 5% stockholders will beneficially own an aggregate of approximately 67.2% of the outstanding shares of New Belk Class A Common Stock. In particular, Mr. John M. Belk, Mrs. Sarah Belk Gambrell and their immediate family members, family trusts and family controlled entities will beneficially own approximately 46.8% of the outstanding shares of New Belk Class A Common Stock. Mr. Belk will be the Chief Executive Officer and Chairman of the New Belk Board. Therefore, New Belk's executive officers, directors and 5% stockholders, if they acted together, would be able to control the election of directors and matters requiring the approval of New Belk Stockholders. This concentration of ownership by certain New Belk Stockholders may also have the effect of delaying or preventing a change in control of New Belk. See "Security Ownership." RISKS OF OWNERSHIP OF NEW BELK COMMON STOCK Absence of Public Market for New Belk Common Stock. New Belk Common Stock will be generally transferable, subject to certain transfer restrictions and conversion requirements discussed herein. New Belk, however, has no present intention to list the shares of New Belk Class A Common Stock issued in the Reorganization, or any other shares of capital stock of New Belk, on any national or regional exchange or to qualify such shares for trading on any over-the-counter market. Consequently, New Belk Stockholders may not be able to liquidate their New Belk Common Stock in the event of emergency or for any other reason. See "Description of New Belk Capital Stock." New Belk may decide in the future to list the shares of New Belk Class B Common Stock issued upon conversion of shares of New Belk Class A Common Stock or otherwise qualify New Belk Common Stock for trading on an established securities market or to allow the creation of a secondary market (or the substantial equivalent thereof) for New Belk Common Stock. Such determination will be made by New Belk only if New Belk determines that such listing or quotation would be in the best interests of New Belk and the New Belk Stockholders. There can be no assurance that if New Belk attempts to list New Belk Class A or Class B Common Stock, either class will be accepted for listing on a national securities exchange or for quotation in a national automated quotations system. Certain Conversion Requirements and Restrictions on Transfer of New Belk Class A Common Stock. Shares of New Belk Class A Common Stock may only be owned by Class A Permitted Holders. In addition, upon transfer of shares of New Belk Class A Common Stock to any person who is not a Class A Permitted Holder such shares will automatically convert into shares of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. Subject to these conversion requirements and other transfer restrictions, shares of New Belk Class A Common Stock to be issued to the Existing Belk Shareholders in connection with the Reorganization will be freely transferable under the Securities Act, 16 <PAGE> 25 except for shares issued to any Existing Belk Shareholder who, at the time of the Reorganization, may be deemed to be an "affiliate" of New Belk within the meaning of Rule 145. In general, affiliates of New Belk include the executive officers and directors and any other person or entity who controls, is controlled by or is under common control with New Belk. Rule 145 imposes, among other things, certain restrictions upon the resale of securities received by affiliates in connection with certain reclassifications, mergers, consolidations or asset transfers. These restrictions will consist of volume and manner of sale restrictions on the resale of New Belk Class A Common Stock issued to such persons or entities. Because of the transfer restrictions and conversion requirements of the New Belk Class A Common Stock, the New Belk Class A Common Stock may be considered less valuable than shares of Belk Companies Common Stock and may not be as readily accepted by lenders as collateral for loans as shares of Belk Companies Common Stock. New Belk may place legends on certificates representing shares of New Belk Class A Common Stock to reflect the transfer restrictions and conversion requirements with respect to such shares. See "Description of New Belk Capital Stock." Anti-Takeover Provisions. Certain provisions of the New Belk Certificate and the New Belk Bylaws impose certain procedures and limitations applicable to stockholders' meetings, proposal of business and nomination of directors that could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of New Belk. Such provisions may limit the price that certain investors may be willing to pay in the future for shares of New Belk Class A Common Stock. These provisions may also reduce the likelihood of an acquisition of New Belk. Further, the New Belk Certificate classifies the New Belk Board into three classes. After an initial term of office, directors of New Belk will be elected for staggered three-year terms. The staggered terms for directors may affect New Belk Stockholders' ability to change control of New Belk even if a change in control were in the New Belk Stockholders' interest. In addition, under the New Belk Certificate, New Belk has the authority to fix the rights and preferences of, and issue shares of, Preferred Stock (as defined herein) without further action of the New Belk Stockholders. Therefore, Preferred Stock could be issued, without stockholder approval, that could have voting, liquidation and dividend rights superior to that of existing stockholders. The issuance of Preferred Stock could adversely affect the voting power of holders of New Belk Common Stock and the likelihood that such holders would receive dividend payments and payments on liquidation, and could have the effect of delaying, deferring or preventing a change in control of New Belk. New Belk has no present plan to issue any shares of Preferred Stock. See "Description of New Belk Capital Stock." RISKS OF OPERATIONS Absence of Combined Operating History. New Belk was organized in November 1997 and has conducted no operations to date. Except for certain services provided by BSS, the Belk Companies have been operating independently, and New Belk may not be able to successfully integrate these businesses and their operations, employees and management. New Belk's management structure is still in its formative stages, and there can be no assurance that New Belk management will be able to oversee the combined entity and implement effectively New Belk's business strategies. See "Business of New Belk" and "Management." Competition. The retail department store industry is highly competitive. New Belk will have, as the Belk Companies separately now have, several competitors on a national and regional level, as well as numerous competitors on a local level. Many factors enter into competition for a consumer's patronage, including price, quality, style, service, product mix, convenience and credit availability. New Belk will compete with a number of national companies that have longer operating histories, larger customer bases, substantially greater financial, management, technical, sales, marketing and other resources than New Belk. Consequently, there can be no assurance that New Belk will be able to continue to be competitive in its markets or that it will be able to competitively enter new markets. Failure by New Belk to maintain its competitiveness would have a material adverse effect on New Belk's business, results of operations and financial condition. See "Business of New Belk -- Industry and Competition." Seasonality of Retail Industry. The Belk Companies experience, and New Belk will experience after consummation of the Reorganization, seasonal fluctuations in retail sales and net income, with a disproportionate amount of the Belk Companies' combined net income typically realized during the fourth quarter. 17 <PAGE> 26 Retail sales and net income are generally weakest during the first quarter. New Belk's quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including the timing of new store openings, the net sales contributed by new stores, merchandise mix and the timing and level of markdowns. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Belk Companies -- Seasonality and Quarterly Fluctuations." Environmental Matters. Many of the Belk Companies own or lease real estate. Under various federal, state and local laws, an owner or operator of real estate may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property. Such laws may impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances. The presence of such substances, or the failure properly to remediate such substances, may adversely affect the owner's or operator's ability to sell the real estate or to borrow using the real estate as collateral. In addition to clean-up actions brought by federal, state and local agencies, the presence of hazardous wastes or materials on or in a property could result in personal injury or claims for property damage by private parties. None of the Belk Companies has been notified by any governmental authority of any liability for fines or other penalties for current violations of any environmental laws in connection with any of the properties owned or operated by the Belk Companies. Neither New Belk nor any of the Belk Companies is aware of any environmental condition with respect to any of the real estate owned or operated by the Belk Companies that is expected to be material to the financial condition or results of operations of New Belk after consummation of the Reorganization. MISCELLANEOUS RISKS Dependence on Key Personnel. New Belk is dependent on the efforts of its executive officers and other key members of senior management. The loss of the services of one or more of these individuals could have an adverse effect on New Belk's business, results of operations and financial conditions. See "Management." Potential Litigation Related to the Reorganization. Within the last five years, a number of retail and non-retail businesses have undergone various forms of structural reorganizations. Certain of such reorganizations have resulted in lawsuits against the board of directors of the entities and persons that participated in the structuring of, or derived benefits from, such reorganizations, as well as claims against the surviving entity and its directors and officers. If any lawsuits were filed in connection with the Reorganization, such lawsuits could delay the consummation of the Reorganization and result in substantial damage claims against the Belk Companies and their directors and officers. If the Reorganization is consummated, New Belk, as the surviving corporation in the Reorganization, will become liable for any such claims against the Belk Companies and may also become liable with respect to indemnification obligations of the Belk Companies to their directors and officers. Contingent or Undisclosed Liabilities. Upon the consummation of the Reorganization, New Belk will operate the businesses of the Belk Companies and own the assets of the Belk Companies and will be liable for the indebtedness and other liabilities of the Belk Companies. The existing indebtedness and other liabilities of the Belk Companies have been taken into account (directly or indirectly) in connection with the determination of the Applicable Exchange Ratios. All liabilities of each Belk Company (known, unknown and contingent) will become the obligations of New Belk in the Reorganization. Furthermore, New Belk will have no recourse against the Belk Companies, the Existing Belk Shareholders or any other person with respect to any undisclosed liabilities. Undisclosed liabilities might include liabilities for cleanup or remediation of undisclosed environmental conditions, claims of persons dealing with the entities prior to the Reorganization (that had not been asserted prior to the Reorganization), accrued but unpaid liabilities incurred in the ordinary course of business and claims for indemnification of directors and officers of the Belk Companies. Lack of Third Party Consents. The Belk Companies intend to seek the consents of third parties in connection with the Reorganization to the extent required by applicable contracts with such third parties. While obtaining such consents is a condition to the consummation of the Reorganization, it is possible that New Belk may waive this condition and proceed to close the Reorganization if consents of one or more of such third parties are not obtained. To the extent consents are not received from third parties, such third parties 18 <PAGE> 27 may elect to exercise remedies against New Belk which could expose New Belk to substantial damages and expenses. See "The Reorganization -- Terms of the Reorganization Agreement -- Conditions to Consummation of the Reorganization." GENERAL INFORMATION This Proxy Statement/Prospectus and a Prospectus Supplement for each Belk Company in which an Existing Belk Shareholder owns shares are being furnished to the Existing Belk Shareholders in connection with the solicitation of proxies by the Board of Directors of each Belk Company for approval of the Reorganization Agreement and the Merger of each Belk Company (other than Belk-Simpson) with and into New Belk and the Merger of New Belk Sub with and into Belk-Simpson. This Proxy Statement/Prospectus and the Prospectus Supplement for each Belk Company also constitute the prospectus of New Belk with respect to the shares of New Belk Class A Common Stock to be issued in the Reorganization. Information in this Proxy Statement/Prospectus and each Prospectus Supplement with respect to the Belk Companies has been supplied by the Belk Companies and BSS. The information with respect to New Belk has been supplied by BSS. SPECIAL MEETINGS TIME, DATE, PLACE AND PURPOSE; RECORD DATE AND SHARES ENTITLED TO VOTE This Proxy Statement/Prospectus and the Prospectus Supplements are being furnished in connection with the solicitation by the Boards of Directors of the Belk Companies of proxies to be voted at the Special Meetings of the shareholders of the Belk Companies to be held at the offices of BSS, 2801 West Tyvola Road, Charlotte, North Carolina 28217 at the times set forth in the Prospectus Supplement for each Belk Company. Only holders of record of shares of Belk Companies Common Stock at the close of business on Record Date are entitled to notice of and to vote at the Special Meeting for that Belk Company and any adjournment thereof. As of the Record Date, each Belk Company had the number of shares issued and outstanding and the number of holders of record specified in the Prospectus Supplement for that Belk Company. At the Special Meetings, each Belk Company's shareholders will be asked to consider and vote upon a proposal to approve the Reorganization Agreement and the Merger of such Belk Company (other than Belk-Simpson) with and into New Belk and the Merger of New Belk Sub with and into Belk-Simpson. Upon consummation of the Reorganization, each outstanding share of Belk Companies Common Stock (other than treasury shares and shares of Belk Companies Common Stock owned by Existing Belk Shareholders who perfect their Applicable State Law Appraisal Rights and other than shares in Belk Companies held by other Belk Companies which, with certain exceptions described herein, will be canceled at the Effective Time) will be converted into the right to receive that number of shares of New Belk Class A Common Stock determined on the basis of the Applicable Exchange Ratio for each Belk Company. See "Determination of Applicable Exchange Ratios." All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. A copy of the Reorganization Agreement executed by all of the Belk Companies, New Belk Sub and New Belk is attached hereto as Annex B and is incorporated herein by this reference. Each Existing Belk Shareholder who wishes to vote at the Special Meeting for its Belk Company must either execute and return a proxy in accordance with the procedures set forth herein and in the accompanying proxy or attend the Special Meeting in person. VOTE REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT The Applicable State Corporate Law and the articles or certificate of incorporation and bylaws of each Belk Company govern the vote required in order to approve the Reorganization Agreement and the Merger of that Belk Company. The Required Shareholder Vote to approve the Reorganization Agreement and Merger relating to each Belk Company is specified in Annex A. A failure to vote or an abstention will have the same 19 <PAGE> 28 effect as a negative vote. Holders of record of Belk Companies Common Stock on the Record Date are entitled to one vote per share on any matter that may properly come before the Special Meeting of the applicable Belk Company. As of the Record Date, Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Mergers for all of the Belk Companies in which they own common stock. If Mr. Belk and the other prospective directors of New Belk vote in favor of the Mergers for all of such Belk Companies, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own common stock in such Belk Companies vote in favor of the Mergers for all of such Belk Companies, the vote by such persons, corporations and trusts in favor of the Mergers would be sufficient to approve the Mergers for 102 of the 112 Belk Companies under their governing documents and applicable state law. These family members, controlled corporations and family trusts have voted in the past in a manner consistent with the member of their family who will serve as a director of New Belk. SOLICITATION AND REVOCATION OF PROXIES A form of proxy for each Belk Company's Special Meeting is enclosed with the Prospectus Supplement being sent to such Belk Company's Existing Belk Shareholders. All shares of Belk Companies Common Stock held of record as of the Record Date represented by properly executed proxies will, unless such proxies have been previously revoked, be voted in accordance with the instructions indicated on such proxies. If no instructions are indicated, such shares will be voted FOR approval of the Reorganization Agreement and the Merger for the applicable Belk Company and in the discretion of the proxy holders as to any other matter which may properly come before the Special Meeting for such Belk Company. Abstentions will be counted as present for purposes of determining whether a quorum is present. If a broker or nominee indicates on its proxy that it does not have discretionary authority to vote on a particular matter as to certain shares, those shares will be counted as present for purposes of a quorum, but will not be considered as present and entitled to vote with respect to such matter. None of the Boards of Directors of the Belk Companies is aware of any other matters which may be presented for action at the Special Meeting for any of the Belk Companies, but if other matters do come properly before any of the Special Meetings, it is intended that shares represented by proxies in the accompanying forms will be voted by the persons named in the proxy in accordance with their best judgment. Any proxy given pursuant to this solicitation may be revoked in writing by the person giving it at any time before the proxy is exercised by giving notice to the Secretary of the applicable Belk Company or by submitting a proxy having a later date or by such person appearing at the Special Meeting for the applicable Belk Company and electing to vote in person. Attendance at the Special Meeting of the applicable Belk Company will not in and of itself constitute the revocation of a proxy. The cost of soliciting such proxies will be borne by BSS. Proxies may be solicited by personal interview, mail and telephone. BSS may reimburse certain persons representing Existing Belk Shareholders for their expenses in forwarding solicitation materials to Existing Belk Shareholders. Proxies may also be solicited by certain executive officers, directors and regular employees of BSS, without additional compensation, personally or by telephone or facsimile transmission. THE REORGANIZATION HISTORY OF THE BELK STORES The Belk department store organization was founded on May 29, 1888, when William Henry Belk opened a department store in Monroe, North Carolina, called "New York Racquet." After forming a partnership with his brother John Montgomery Belk in 1891, William Henry Belk set in motion a blueprint for the development of a department store business that would eventually result in more than 400 stores in eighteen states in the southeastern United States and Puerto Rico. Following this blueprint, the Belk brothers expanded their business by "partnering" with other local merchant families such as the Harry, Matthews, Hudson, Simpson, Parks and Leggett families. 20 <PAGE> 29 The department stores organized through these partnerships were owned and managed by separate corporations in most cases with members of the Belk family as majority shareholders and the local "partner" families as minority shareholders and operators. Over time, this practice gave rise to more than 300 separately owned corporations which owned and managed the Belk store businesses. Over the last 100 years, the ownership of the Belk store businesses has been consolidated and the number of Belk store corporations has been reduced. Today, the Belk Companies and the Surviving Belk Subsidiaries operate 225 Belk stores. BSS provides administrative, merchandising and organizational services to the Belk Companies. In addition to their separate ownership, the Belk Companies are also characterized by pervasive cross ownership among the Belk Companies. In response to the desire of various shareholders to sell their interests in certain Belk Companies in the early 1980's, a number of the Belk Companies began purchasing the stock of such shareholders in other Belk Companies. As a result, 57 of the 112 Belk Companies own stock in one or more of the other Belk Companies. BACKGROUND OF THE REORGANIZATION In February 1997, management of BSS initiated a study to determine whether the decentralized legal structure of the Belk department store organization with layers of direct and indirect ownership was the most viable structure for an organization that competes with major national department store chains structured in a more conventional manner. In April 1997, after interviewing several nationally prominent investment banking firms, the Board of Directors of BSS retained Goldman, Sachs & Co. ("Goldman Sachs") as financial advisor to render advice to BSS in analyzing and considering whether the Belk Companies should be reorganized into one or more operating entities and, if the reorganization of the Belk Companies was determined by management of BSS to be feasible, to render advice to BSS in determining the appropriate organizational and capital structure of the resulting entity or entities, including advice related to the financial methods for valuing the Belk Companies (but not with respect to the fairness of the valuation of any specific Belk Company). BSS also retained King & Spalding to render legal advice and KPMG Peat Marwick LLP to perform audit services. Following the retention of its advisors, senior management of BSS initially considered whether a consolidated legal structure for the organization was appropriate and feasible, and management participated in numerous meetings and discussions with its advisors over the course of the next six months to explore the various issues involved. The primary focus of such meetings was the consideration of the potential benefits and risks of merging the Belk Companies into a single operating entity, the development of an appropriate methodology to allocate ownership in such an entity and the review of the legal and accounting consequences of a reorganization. Over a period of several months, management of BSS concluded that a reorganization of the Belk Companies was in the best interests of the companies and their shareholders, and the working group developed a proposed legal structure and valuation methodology to allocate ownership of New Belk Common Stock among the Existing Belk Shareholders. Willamette advised BSS on the reasonableness and fairness of the Valuation Process. KPMG Peat Marwick LLP advised BSS on the accounting and auditing requirements of a reorganization and commenced field work for an audit of the combined financial statements of the Belk Companies and individual audits of certain of the companies. Steps were also undertaken to prepare for the potential registration of the shares of the combined entity. Prior to formally proposing the Reorganization, representatives of BSS met individually with certain directors of the Belk Companies to explain the allocation methodology and to solicit the views of such directors on the wisdom of a reorganization and the fairness of the suggested allocation of ownership in the resulting entity. After taking into account all such input, the management of BSS decided to recommend the Reorganization to the Boards of Directors of each Belk Company. A combined informational meeting of the Boards of Directors of the Belk Companies was held on November 24, 1997, at which detailed presentations and question and answer sessions were conducted by representatives of BSS, Goldman Sachs and King & Spalding. After conducting their own review, the Boards of Directors of each Belk Company voted at separate board meetings held on November 25, 1997 to approve the Reorganization and to recommend the Reorganization to their Existing Belk Shareholders. 21 <PAGE> 30 PROFESSIONAL ADVISORS Financial Advisor. Prior to being retained as financial advisor, Goldman Sachs and its affiliates had no pre-existing relationship with BSS or any of the Belk Companies. For its services as financial advisor, Goldman Sachs has been paid a quarterly advisory fee of $250,000, commencing April 1, 1997 and will continue to be paid such quarterly fee for the balance of its engagement, which is anticipated to continue through the consummation of the Reorganization. In addition, Goldman Sachs will be entitled to reimbursement of its reasonable expenses and disbursements in connection with its engagement, subject to certain limitations. Goldman Sachs is not evaluating the fairness of the relative valuation of any Belk Company or the reasonableness of the Valuation Process and will not participate in the solicitation of proxies from Existing Belk Shareholders and will not receive any compensation related to the solicitation of proxies from Existing Belk Shareholders. Fairness Analysis. Willamette was retained to evaluate the reasonableness and the fairness of the Valuation Process for the Reorganization. See "Determination of Applicable Exchange Ratios -- Fairness Opinion." Willamette was retained because of its experience in the valuation of retail businesses. Since its founding in 1969, Willamette has provided information, research, investment, banking and consulting services to clients throughout the United States, including over 50 companies engaged in the retail business. For rendering such services and delivering the Fairness Opinion, Willamette has been paid a fee of $150,000. In addition, Willamette will be entitled to reimbursement of its reasonable expenses and disbursements in connection with its engagement, subject to certain limitations. Payment of the fee to Willamette was not dependent upon consummation of the Reorganization or the opinion expressed in the Fairness Opinion. Legal Counsel. King & Spalding, Atlanta, Georgia, was retained by BSS to represent it in connection with certain corporate, securities and tax matters involved in the Reorganization. King & Spalding will render an opinion on the legal validity of the New Belk Common Stock to be issued in the Reorganization. See "Legal Opinions." Accountants. KPMG Peat Marwick LLP, an independent public accounting firm, was retained by BSS to audit certain financial information and to provide its reports thereon in connection with the Reorganization. See "Experts." SURVIVING BELK SUBSIDIARIES The Surviving Belk Subsidiaries are listed on Annex A to this Proxy Statement/Prospectus. Upon consummation of the Reorganization, New Belk will own 100% of the capital stock of the Surviving Belk Subsidiaries (except that New Belk will own 99.8% of the capital stock of BSS). Immediately following the Reorganization, New Belk intends to merge all of the Surviving Belk Subsidiaries with and into New Belk, with the exception of Archdale Advertising Agency, Inc., Belk Leasing Company, BSS, UES, Belk Stores Mutual Insurance Company, Belk Center and Belk International, which will remain subsidiaries of New Belk. NON-BELK STORES All of the companies that operate Belk retail department stores are involved in the Reorganization. Certain companies that currently are affiliated with the Belk department store business, but do not operate Belk retail department stores, will not be involved in the Reorganization. These companies include (i) Kitchin's of Alabama, Inc., Kitchin's of Enterprise, Ala., Inc., Kitchin's of Troy, Alabama, Inc. and Kitchin's of Starkville, Mississippi, Inc. (collectively, "Kitchin's"), (ii) Hudson's Department Store, Incorporated ("Hudson's") and (iii) Howard's Department Store of Columbia, S.C., Inc. ("Howard's"). Kitchin's and Hudson's. Kitchin's and Hudson's consist of five companies that operate four stores under local names in Alabama and Mississippi that are members of BSS. Although an agreement has not yet been finalized, it is anticipated that these stores will continue to receive services from BSS, but Kitchin's will cease to be an owner of BSS prior to the Effective Time. 22 <PAGE> 31 Howard's. Howard's operates one store under a local name in Cayce, South Carolina that is a member of BSS. Although an agreement has not yet been finalized, it is anticipated that Howard's will withdraw from membership in BSS and cease to be an owner of BSS prior to the Effective Time. RECOMMENDATION OF BOARDS OF DIRECTORS THE BOARD OF DIRECTORS OF EACH BELK COMPANY HAS DETERMINED THAT THE MERGER OF SUCH BELK COMPANY PURSUANT TO THE REORGANIZATION AGREEMENT IS IN THE BEST INTERESTS OF SUCH BELK COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER OF SUCH BELK COMPANY PURSUANT TO THE REORGANIZATION AGREEMENT AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND SUCH MERGER PURSUANT TO THE REORGANIZATION AGREEMENT. REASONS FOR THE REORGANIZATION The Boards of Directors of the Belk Companies, based on certain factors listed below, have concluded that the Merger relating to each Belk Company, and the Reorganization as a whole, is fair to and in the best interests of each Belk Company and the Existing Belk Shareholders, approved the Reorganization Agreement and resolved to recommend that the Existing Belk Shareholders approve the Reorganization Agreement. The following is a discussion of the primary benefits that the Boards of Directors of the Belk Companies believe will result from the Reorganization for the Existing Belk Shareholders. Enhanced Competitiveness. The retail department store industry is highly competitive and, in the judgment of management, competition in the industry is likely to increase. Management believes that the companies in the retail department store industry that will be successful in this increasingly competitive environment will be larger companies that have an efficient legal structure, modern and attractive stores in key markets, effective inventory management, merchandise that appeals to their best customers, sophisticated management information systems, operating efficiencies and access to significant sources of capital. The results of operations of the Belk Companies' principal competitors support this view. For the fiscal year ended February 2, 1997, the publicly reported sales of Federated Department Stores, Inc., The May Department Stores Company and Dillard's, Inc. were approximately $15.2 billion, $12.0 billion and $6.3 billion, respectively, for such period, as compared to $2.1 billion for the Belk Companies on a pro forma combined basis for such period. The operating margins of such companies for the fiscal year ended February 2, 1997 were 5.9%, 12.6% and 8.0%, respectively, as compared to 5.0% for the Belk Companies on a combined basis for such period. Management believes that the Reorganization will create a new Belk store organization that will be larger, stronger and more effective in competing against larger companies in the industry. Operational Integration. The Reorganization will combine all of the operations of the Belk Companies into a fully integrated retail department store business which owns 225 retail department stores in 13 states in the southeastern United States. This combination of the Belk department store businesses will have two primary effects: Single Business to Pursue Objectives. As separate legal entities with different groups of shareholders, each of the Belk Companies must segregate its assets and liabilities from the assets and liabilities of other Belk Companies, conduct operations independently, maintain separate books and records and prepare separate financial statements, tax returns and shareholder information. Although it has been possible through BSS to coordinate, in part, the separate businesses of the Belk Companies, all of such coordination efforts must be subject to the general principle that the assets of one Belk Company cannot be employed for the benefit of the other Belk Companies as they could if all of the Belk Companies were combined into a single enterprise. Due to the separate legal existence of the Belk Companies, with their different groups of shareholders, the directors and officers of the Belk Companies must always be mindful that the Belk Companies are separate corporations, and treat them separately, even if other courses of action would benefit most, if not all, of the Belk Companies. Potential and actual conflicts of interest 23 <PAGE> 32 frequently arise in the allocation of management and financial resources and in other areas of managing the Belk Companies. The Reorganization will place all of the assets of the Belk Companies, including BSS, under common ownership and will allow such assets to be used to achieve a common set of objectives. Through the Reorganization, New Belk intends to pursue opportunities that cannot be fully pursued by the Belk Companies acting on their own, including the opportunities to make new investments and to obtain improved financing. Simplified Administration. Each year the Belk Companies must prepare 112 separate sets of annual financial statements, tax returns and shareholder communications, together with other quarterly tax filings and periodic reports to shareholders. In addition, the maintenance of 112 separate corporations involves the preparation of separate minutes for Board of Directors meetings, passing of separate resolutions for the Board of Directors of each Belk Company and separate shareholder meetings. The preparation of this material involves substantial management time and effort. Management believes that the Reorganization will eliminate much of the duplication in reporting, filing and other administrative services, thus simplifying the administration of New Belk, which should enable management of New Belk to expend less effort on administrative tasks and more time on strategic and operational business issues. Moreover, the Reorganization will eliminate the risk of misallocating expenses benefiting one or more but not all of the Belk Companies, and will simplify the preparation of financial statements, tax returns, shareholder information and reports and filings. Enhanced Access to Capital. With a larger base of assets and a greater equity value, New Belk should be able to obtain additional capital with greater ease and on more attractive terms than would be available to most of the Belk Companies individually. New Belk should have more sources of capital available than the Belk Companies individually through access to equity and debt markets as well as from more traditional sources of financing. New Belk's structure and capitalization should make it more attractive to investment banking firms, financial institutions, institutional lenders and others interested in investing large amounts of capital in the Belk store organization. This enhanced access to capital will reduce the risks faced by individual Belk Companies associated with refinancing existing debt at maturity and eliminate the need for one Belk Company to obtain equity capital, loans or loan guarantees from other Belk Companies. Growth Potential. New Belk's combined structure and capitalization will allow the Existing Belk Shareholders an opportunity to participate in the growth of the retail department store industry through an ownership interest in a single business enterprise. Total annual sales in the retail department store industry now exceed $60 billion, and management believes that the industry offers significant growth opportunities for expansion of the Belk retail department store business. Department stores in general are experiencing a demographic expansion of their key customer base as the baby-boomer generation enters its 40's and 50's. Department stores are also consolidating their position as a preferred distribution channel for high-profile brands, allowing them to win greater market share from specialty retailers. In addition, the southeastern United States, where New Belk's stores will be concentrated, is a region of high growth and relatively low unemployment. Operational integration and enhanced access to capital should also contribute to New Belk's ability to strengthen the Belk Companies' market position in the southeastern United States and allow New Belk to take advantage of the significant growth opportunities represented by promising industry and regional conditions. Potential Liquidity. New Belk has no present intention to list the shares of New Belk Class A Common Stock issued in the Reorganization, or any other capital stock of New Belk, on any national or regional exchange or to qualify shares of New Belk Class A Common Stock for trading on any over-the-counter market. Nevertheless, the New Belk Class A Common Stock issued in the Reorganization and the New Belk Class B Common Stock issued upon conversion of New Belk Class A Common Stock will generally be transferable, subject to the transfer restrictions and conversion requirements described herein, and the creation of a single business enterprise with a substantial number of shareholders should make it more likely that a more active trading market for shares of New Belk Class A Common Stock and New Belk Class B Common Stock issued upon conversion of New Belk Class A Common Stock will develop than now exists for the Belk Companies Common Stock. See "Risk Factors -- Risks of Ownership of New Belk Class A Common Stock -- Certain Conversion Requirements and Restrictions on Transfer of New Belk Class A Common 24 <PAGE> 33 Stock." Such a trading market should increase the liquidity of New Belk Class A Common Stock and New Belk Class B Common Stock issued upon conversion of New Belk Class A Common Stock as compared to the Existing Belk Shareholders' investment in the Belk Companies. Asset and Risk Diversification. By combining the Belk Companies into a single enterprise, the Reorganization will create a single operating entity substantially larger and more diversified than any of the individual Belk Companies. The combination of the businesses of the Belk Companies will diversify the investment risks and rewards of the Existing Belk Shareholders over a broader group of operations and businesses and will reduce the dependence of the Existing Belk Shareholders on the performance of, and the exposure to the risks associated with, their individual Belk Company. See "Risk Factors -- Risks and Effects of the Reorganization." Expense and Tax Savings. Upon consummation of the Reorganization, management of BSS estimates that New Belk will realize considerable savings resulting from, among other things, (i) a reduction in finance costs due to reduced banking fees and interest expense, consolidation of credit lines and the ability to complete more efficient financing transactions for the Belk Companies as a whole, such as securitization of receivables, (ii) more efficient cash management and (iii) tax savings from the use of previously unused operating losses and other tax benefits. Management estimates that such savings could amount to as much as $8 to $10 million in the first year following the Reorganization and $3 to $5 million on an annual basis thereafter. Management cannot determine with certainty, however, whether, when and to what extent such savings will actually be realized by New Belk. In addition to the above factors, the Boards of Directors of the Belk Companies considered the following factors in approving the Reorganization Agreement and in making their recommendation that the Existing Belk Shareholders approve the Reorganization Agreement and the Mergers: (i) the judgment, advice and analysis of its management with respect to the potential strategic, financial and operational benefits of the Reorganization; (ii) current industry, economic and market conditions; (iii) the advice of, and financial analysis prepared by, management of BSS; (iv) the information concerning the financial condition, results of operations and cash flows and businesses of the Belk Companies and New Belk; (v) the terms and conditions of the Reorganization Agreement, including the requirement for shareholder approval of each Merger; (vi) the expectation that each Merger (other than the Belk-Simpson Merger) would be treated as a tax-free reorganization under Section 368(a) of the Code and that the Belk-Simpson Merger would be treated as a tax-free transaction under Section 351(a) of the Code; (vii) the Boards of Directors' evaluation of the potential long-term value of shares of New Belk Common Stock; (viii) the synergies, cost savings and operational efficiencies that may become available to the combined enterprise as a result of the Reorganization; (ix) the potential strategic benefits of the Reorganization in light of the increasingly competitive environment in the retail department store industry, the strategic options available to New Belk and the impact on the Belk Companies of further consolidation in the industry; and (x) the ability to obtain required consents and regulatory approvals to consummate the Reorganization. There can be no assurance that any of the expected benefits of the Reorganization, including those considered by the Boards of Directors of the Belk Companies, will be realized. 25 <PAGE> 34 The foregoing discussion of the factors and information considered by the Boards of Directors of the Belk Companies is not intended to be exhaustive. In view of the variety of factors considered in connection with the evaluation of the Reorganization and of each Merger, the Boards of Directors of the Belk Companies did not find it practical to and did not quantify or otherwise assign relative weights to the specific factors considered in reaching their determination. In addition, individual members of the Boards of Directors of the Belk Companies may have given different weights to different factors. CONSEQUENCES OF NON-PARTICIPATION IN THE REORGANIZATION If the Existing Belk Shareholders in any of the Belk Companies do not approve the Reorganization Agreement and the Merger of such Belk Company by the Required Shareholder Vote, New Belk may elect not to consummate the Reorganization. See "-- Terms of the Reorganization Agreement." If New Belk elects to waive the condition to consummation of the Reorganization that all of the Belk Companies' approve the Reorganization Agreement and the Mergers by the Required Shareholder Vote and elects to consummate the Reorganization with the participation of less than all of the Belk Companies, any Belk Company that does not participate in the Reorganization (a "Non-Participating Belk Company") may be subject to the following risks: Risk of Operation as a Stand Alone Company. A Non-Participating Belk Company will be subject to the risks of operating as a stand alone company. BSS currently provides administrative, purchasing, merchandising, advertising and other services to the Belk Companies and their subsidiaries. There is no assurance that New Belk, as the controlling shareholder of BSS after consummation of the Reorganization, will elect to cause BSS, to the extent it is not contractually obligated to provide services, to continue to provide these services to a Non-Participating Belk Company or that it will continue to provide such services at prices equal to those which any such Non-Participating Belk Company may presently pay. Such services, if provided, may also be different in scope and character than the services currently provided by BSS. Financing Difficulties. New Belk will be significantly larger in size than any of the individual Belk Companies, and management of New Belk expects that it will have increased access to capital on more attractive terms than are presently available to the individual Belk Companies. One of the primary sources of financing for the individual Belk Companies has been other Belk Companies. Additionally, many of the Belk Companies have served as guarantors for bank borrowings of other Belk Companies. It is not expected that loans, loan guarantees or equity capital will be available to any Non-Participating Belk Company from New Belk. Therefore, a Non-Participating Belk Company may be forced to borrow funds or obtain equity capital from different sources and on less favorable terms than such Non-Participating Belk Company was able to obtain prior to the Reorganization. TERMS OF THE REORGANIZATION AGREEMENT General. The Reorganization Agreement provides that, following the approval of the Reorganization Agreement by the Existing Belk Shareholders of each Belk Company and the satisfaction or waiver of the other conditions to the Merger of such Belk Company, at the Effective Time, each Belk Company (other than Belk-Simpson) will be merged with and into New Belk in accordance with the provisions of Applicable State Corporate Law. New Belk will be the surviving corporation in the Reorganization. As a result of the Reorganization, (i) the separate corporate existence of each Belk Company (other than Belk-Simpson) will cease, (ii) Belk-Simpson will survive its Merger with New Belk Sub as a wholly-owned subsidiary of New Belk and (iii) the Surviving Belk Subsidiaries will survive the Reorganization as wholly-owned subsidiaries of New Belk (except that New Belk will own 99.8% of the capital stock of BSS). Conversion of Shares. The Reorganization Agreement provides that each share of Belk Companies Common Stock issued and outstanding immediately before the Effective Time (other than treasury shares and shares of Belk Companies Common Stock held by Existing Belk Shareholders who perfect their Applicable State Law Appraisal Rights and other than shares in Belk Companies owned by other Belk Companies which will be canceled at the Effective Time, except that shares of common stock of Belk Department Stores of Camden, S.C., Incorporated, Parks-Belk Company of Clarksville, Tennessee and Belk-Simpson Realty 26 <PAGE> 35 Company, and the member interests in TAGS, which are owned by Belk-Simpson at the Effective Time will not be canceled, but will be converted into an aggregate of 246,174 shares of New Belk Class A Common Stock) and all rights in respect thereof will, at the Effective Time, be converted into and become exchangeable for a specified number of shares of New Belk Class A Common Stock determined in accordance with the Applicable Exchange Ratios. See "Determination of Applicable Exchange Ratios." All of the shares of New Belk Class A Common Stock to be received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. Board of Directors of New Belk. The Reorganization Agreement provides that, at the Effective Time, the New Belk Board will consist of John M. Belk, Sarah Belk Gambrell, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, David Belk Cannon, J. Kirk Glenn, Jr., Karl G. Hudson, Jr., John A. Kuhne and B. Frank Matthews, II. John M. Belk will be the Chairman of the New Belk Board. Certificate of Incorporation and Bylaws of New Belk. The Reorganization Agreement provides that, at the Effective Time, the Certificate of Incorporation and Bylaws of New Belk will be amended and restated in the forms attached to the Reorganization Agreement as Exhibits B and C, respectively. Conditions to Consummation of the Reorganization. In addition to approval of the Reorganization Agreement by the Required Shareholder Vote for each Belk Company, the consummation of each Merger is subject to the satisfaction or waiver of, among certain other customary conditions, the following: (i) no Existing Belk Shareholder shall have elected to dissent from and exercise Applicable State Law Appraisal Rights with respect to any Merger; (ii) the Mergers of all of the Belk Companies (other than Belk-Simpson) with and into New Belk shall have been consummated in accordance with the Reorganization Agreement; (iii) the Merger of New Belk Sub with and into Belk-Simpson shall have been consummated in accordance with the terms of the Reorganization Agreement; (iv) Belk-Simpson shall have completed the Belk-Simpson Plan of Reorganization; (v) the Registration Statement shall be effective; and (vi) the applicable waiting period shall have expired under the HSR Act. Amendment and Waiver. The Reorganization Agreement may be amended by mutual agreement of the parties thereto. Any amendment to the Reorganization Agreement must be in writing and signed by the parties thereto. Any provision of the Reorganization Agreement may be waived in writing at any time by the party that is, or whose shareholders are, entitled to the benefits of such provision. Termination. The Reorganization Agreement may be terminated prior to the Effective Time: (i) with respect to the Merger of any particular Belk Company by mutual written agreement between New Belk and such Belk Company; (ii) by a Belk Company with respect to its Merger or by New Belk with respect to such Merger or the Reorganization as a whole if an event occurs that renders impossible the satisfaction of the conditions to such party's obligations to consummate the Merger, unless the failure of such occurrence shall be due to the failure of the party seeking to terminate the Reorganization Agreement to perform or observe its covenants, agreements and conditions required to be observed by it prior to the Effective Time; (iii) by New Belk with respect to the Merger of any particular Belk Company or the Reorganization as a whole if the shareholders of such Belk Company do not approve the Reorganization Agreement; (iv) by New Belk with respect to the Merger of any particular Belk Company or the Reorganization as a whole if the Board of Directors of such Belk Company withdraws, or modifies in a manner adverse to New Belk, its recommendation that the Reorganization Agreement be approved; (v) by a Belk Company with respect to its Merger or by New Belk with respect to such Merger or the Reorganization as a whole if the Effective Time has not occurred by June 1, 1998; and (vi) by New Belk with respect to the Merger of any particular Belk Company or the Reorganization as a whole if any Existing Belk Shareholder owning shares in such Belk Company shall have elected to dissent from and exercise his Applicable State Law Appraisal Rights with respect to such Merger. Covenants. In addition to customary covenants regarding conduct of business pending consummation of the Reorganization, each Belk Company has agreed that it will only pay dividends for fiscal year 1998 in amounts consistent with dividends paid for prior years, subject to normal working capital requirements. No Belk Company may, without the prior written consent of New Belk, pay dividends for fiscal year 1998 in an aggregate amount greater than the aggregate amount paid in dividends for fiscal year 1997. Fees and Expenses. BSS will pay all Reorganization Expenses. 27 <PAGE> 36 EFFECTIVE TIME OF THE REORGANIZATION AND EXCHANGE OF SHARES Effective Time of the Reorganization. The Reorganization and each Merger consummated pursuant to the Reorganization will become effective upon the latest to occur of the filing of the certificates of merger or articles of merger, as applicable, relating thereto with the Secretaries of State of Delaware and the applicable states of incorporation of the Belk Companies. The Reorganization Agreement provides that the parties thereto will cause such certificates of merger or articles of merger, as applicable, to be filed as soon as practicable after all of the conditions to consummation of each Merger contemplated thereby have been satisfied or waived. Exchange of Belk Companies Stock Certificates. Prior to the Effective Time, instructions and a letter of transmittal will be furnished to all Existing Belk Shareholders for use in exchanging their stock certificates for certificates evidencing the shares of New Belk Class A Common Stock they will be entitled to receive as a result of the Reorganization. EXISTING BELK SHAREHOLDERS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL INSTRUCTIONS AND THE LETTER OF TRANSMITTAL ARE RECEIVED. BELK-SIMPSON REORGANIZATION It is a condition to the consummation of the Reorganization that Belk-Simpson shall have completed the Belk-Simpson Plan of Reorganization. The assets of Belk-Simpson currently consist of its retail department store business and certain investment assets which are unrelated to the retail department store business, including a portfolio of publicly traded stocks and other securities (excluding investments in other Belk Companies) (the "Stock Portfolio") and real estate (the "Non-Retail Real Estate"). Pursuant to the Belk-Simpson Plan of Reorganization, Belk-Simpson will undertake to sell its Stock Portfolio and the Non-Retail Real Estate and will use the net proceeds of such sale to make an offer to purchase all of the outstanding shares of its common stock at per share price based upon the stockholders' equity of Belk-Simpson at February 1, 1997 (adjusted to reflect the actual sales price or market price of the Stock Portfolio and the Non-Retail Real Estate), less all income taxes and other expenses of Belk-Simpson due or to become due as a result of the sale of the Stock Portfolio and the Non-Retail Real Estate. It is expected that most of the shareholders of Belk-Simpson, other than members of the Belk family, will tender their shares to Belk-Simpson in response to the offer to purchase shares. Upon completion of the Belk-Simpson Plan of Reorganization and at the Effective Time, the assets of Belk-Simpson are expected to consist only of the retail department store business of Belk-Simpson. INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION The Reorganization and the recommendation of the Boards of Directors of the Belk Companies involve conflicts of interest. See "Risk Factors -- Risks and Effects of the Reorganization -- Conflicts of Interest." In managing the affairs of the Belk Companies, each member of the Boards of Directors of a Belk Company is required to act in good faith and with an undivided duty of loyalty to the Belk Companies and the Existing Belk Shareholders. Certain executive officers and directors of the Belk Companies have conflicts of interest in recommending the Reorganization to the Existing Belk Shareholders because they serve as executive officers or directors of more than one of the 112 Belk Companies. These common directorships may affect the ability of such executive officers and directors to act independently and in the best interests of each separate Belk Company for which they serve as executive officers and directors. Certain of such executive officers and directors, including John M. Belk, Thomas M. Belk, Jr., H.W. McKay Belk and John R. Belk, will serve as executive officers and directors of New Belk. The Reorganization will also consolidate the holdings of John M. Belk, Sarah Belk Gambrell and other Belk family members from a number of business enterprises into one combined business enterprise and give Mr. Belk, Mrs. Gambrell and such other Belk family members substantial control over the operations of New Belk. These relationships cause Mr. Belk, Mrs. Gambrell and such other Belk family members to have interests in the Reorganization that are different from or in addition to, the interests of the other Existing Belk Shareholders. These conflicts of interest could result in decisions that do not fully reflect the interests of each Existing Belk Shareholder in each Belk Company. Each Board of Directors considered these conflicts of 28 <PAGE> 37 interest when determining whether to to recommend the Reorganization Agreement and its Merger to the Existing Belk Shareholders. ACCOUNTING TREATMENT The Reorganization will be accounted for as a purchase business combination in which Belk Enterprises, Inc. will be treated as the acquiror for accounting purposes, in accordance with the provisions of Accounting Principles Board Opinion Number 16 and the requirements of the Commission's Staff Accounting Bulletin Number 97. Accordingly, the assets and liabilities of Belk Enterprises, Inc. will be carried forward at the Effective Time of the Reorganization to the financial statements of New Belk at their previously recorded historical cost amounts and the assets and liabilities of the remaining Belk Companies will be recorded based on their fair values. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion describes the material federal income tax consequences of the Reorganization. The discussion is based upon the Code, U.S. Treasury Regulations promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect on the date of this Proxy Statement/Prospectus. These laws and interpretations are subject to change at any time (possibly with retroactive effect), and the relevant facts may differ at the Effective Time. The discussion does not address the effects of any state, local or foreign tax laws. New Belk has received an opinion (the "Tax Opinion") from its counsel, King & Spalding, that, based upon its review of this Proxy Statement/Prospectus, the Reorganization Agreement, certain other facts and documents which it has considered relevant, and certain representations made to it by New Belk and each of the Belk Companies, the Reorganization will have the federal income tax consequences set forth below: (i) each Merger (other than the Belk-Simpson Merger) will qualify as a tax-free reorganization under Section 368(a) of the Code; (ii) the Belk-Simpson Merger will qualify as a tax-free transaction under Section 351(a) of the Code; (iii) no gain or loss will be recognized by an Existing Belk Shareholder upon the exchange in a Merger of Belk Companies Common Stock for the New Belk Class A Common Stock; (iv) the tax basis of the New Belk Class A Common Stock received in a Merger by an Existing Belk Shareholder will be the same as the tax basis of the Belk Companies Common Stock exchanged for such New Belk Class A Common Stock; and (v) the holding period of the New Belk Class A Common Stock received in a Merger by an Existing Belk Shareholder will include the holding period of such Shareholder in the Belk Companies Common Stock exchanged for such New Belk Class A Common Stock, provided that the Belk Companies Common Stock is held as a capital asset at the Effective Time. In rendering the Tax Opinion, counsel has relied upon certain written representations as to factual matters made by appropriate officers of New Belk and of each of the Belk Companies. Such representations are customary for opinions of this type; the Tax Opinion cannot be relied upon, however, if any such representation is, or later becomes, inaccurate. No ruling from the Internal Revenue Service (the "IRS") with respect to the tax consequences of the Reorganization has been, or will be, requested, and the Tax Opinion is not binding upon the IRS or the courts. The foregoing discussion of the tax consequences of the Reorganization applies only to an Existing Belk Shareholder who holds Belk Companies Common Stock as a capital asset, and may not apply to special situations, such as Existing Belk Shareholders, if any, who received their Belk Companies Common Stock upon the exercise of employee stock options or otherwise as compensation and Existing Belk Shareholders that are insurance companies, securities dealers, financial institutions or foreign persons. 29 <PAGE> 38 Shares of New Belk Class A Common Stock may be converted into shares of New Belk Class B Common Stock under the circumstances described below in "-- Certain Conversion Requirements and Transfer Restrictions." A holder of New Belk Class A Common Stock will not recognize any income, gain or loss upon conversion of New Belk Class A Common Stock into New Belk Class B Common Stock. Such holder's tax basis in the New Belk Class B Common Stock received upon conversion will be the same as such holder's adjusted tax basis in the New Belk Class A Common Stock surrendered for conversion, and the holding period for the New Belk Class B Common Stock received upon conversion generally will include the holding period of the New Belk Class A Common Stock so converted. THE DISCUSSION SET FORTH ABOVE DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE REORGANIZATION. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. EACH EXISTING BELK SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE REORGANIZATION TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS. CERTAIN CONVERSION REQUIREMENTS AND TRANSFER RESTRICTIONS The shares of New Belk Class A Common Stock to be issued to the Existing Belk Shareholders in connection with the Reorganization are convertible into shares of New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class B Common Stock are identical to shares of New Belk Class A Common Stock in all respects, with the exception that holders of New Belk Class B Common Stock are entitled to one vote per share on all matters which are submitted to the New Belk Stockholders for their vote or approval while holders of New Belk Class A Common Stock are entitled to 10 votes per share on all such matters. The holders of both classes of New Belk Common Stock are entitled to vote and will vote together as a single class on all matters presented to the New Belk Stockholders for their vote or approval except as otherwise required by Delaware law. See "Description of New Belk Capital Stock." Shares of New Belk Class A Common Stock may be owned only by a Class A Permitted Holder. Upon a transfer of a share of New Belk Class A Common Stock to any person other than a Class A Permitted Holder, such share of New Belk Class A Common Stock so transferred will be automatically converted into one share of New Belk Class B Common Stock. A "Class A Permitted Holder" includes only the following persons: (i) each person who was, on November 25, 1997, a holder of record of New Belk Class A Common Stock (a "Record Holder") and his or her estate, guardian or conservator, (ii) each spouse of a Record Holder and his or her estate, guardian or conservator, (iii) each descendant of a Record Holder and his or her estate, guardian or conservator, (iv) each spouse of a descendant of a Record Holder and his or her estate, guardian or conservator (the Record Holder and the spouse, descendants and spouses of descendants of the Record Holder, and their respective estates, guardians and conservators being collectively referred to as a "Record Holder Family Group"), (v) each Record Holder Entity (as defined herein), (vi) each Record Holder Trust (as defined herein) and (vii) each Permitted Charitable Beneficiary (as defined herein). The term "Record Holder Entity" means any corporation, partnership, unincorporated association, firm, joint venture or other legal entity controlled by one or more members of a Record Holder Family Group. The term "Record Holder Trust" means any trust the primary beneficiaries of which are one or more members of a Record Holder Family Group and Permitted Charitable Beneficiaries. The term "Permitted Charitable Beneficiary" means any organization described in Section 501(c)(3) of the Code, but only with respect to shares of Class A Common Stock or interests therein, including future interests, which such organization receives by gift, grant, bequest, devise or similar gratuitous transfer from one or more Class A Permitted Holders. For this purpose, the primary beneficiaries of a trust will be deemed to be one or more members of a Record Holder Family Group and Permitted Charitable Beneficiaries if, under the maximum exercise of discretion by the trustees of 30 <PAGE> 39 such trust in favor of persons who are not members of the Record Holder Family Group and Permitted Charitable Beneficiaries, the value of the interest of such persons in the trust, computed actuarially, is 50% or less. The factors and methods prescribed in Section 7520 of the Code, for use in ascertaining the value of certain interests shall be used in determining a beneficiary's actuarial interest in a trust for this purpose. The actuarial value of the interest in a trust of any person in whose favor a testamentary power of appointment may be exercised will be deemed to be zero. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder set forth above. New Belk may place legends on certificates representing shares of New Belk Class A Common Stock that are to be issued to Existing Belk Shareholders in the Reorganization to reflect the transfer restrictions and conversion requirements applicable to such shares. RESALES OF NEW BELK CLASS A COMMON STOCK Shares of New Belk Class A Common Stock to be issued to the Existing Belk Shareholders in connection with the Reorganization will be freely transferable under the Securities Act (but will still be subject to compliance with other applicable conversion requirements and transfer restrictions), except for shares issued to any Existing Belk Shareholder who, at the time of the Reorganization, may be deemed to be an "affiliate" of New Belk within the meaning of Rule 145. In general, affiliates of New Belk include the executive officers and directors of, and any other person or entity who controls, is controlled by or is under common control with, New Belk. Rule 145 imposes, among other things, certain restrictions upon the resale of securities received by affiliates in connection with certain reclassifications, mergers, consolidations or asset transfers. These restrictions will consist of volume and manner of sale restrictions on the resale of New Belk Class A Common Stock issued to such persons or entities. Shares of New Belk Class B Common Stock will also be freely transferable under the Securities Act, except for those restrictions on transferability under Rule 145 applicable to New Belk Class B Common Stock owned by New Belk Stockholders who are affiliates of New Belk. New Belk may place legends on certificates representing shares of New Belk Common Stock that are to be issued to such Existing Belk Shareholders in the Reorganization to reflect the restrictions on transferability under Rule 145 applicable to affiliates of New Belk. See "Description of New Belk Capital Stock -- New Belk Common Stock." DISSENTERS' RIGHTS OF APPRAISAL Each Existing Belk Shareholder is entitled to dissent from the Merger of any Belk Company in which such Existing Belk Shareholder owns shares of common stock and exercise Applicable State Law Appraisal Rights in conjunction with such Merger. A person having a beneficial interest in shares of Belk Companies Common Stock held of record in the name of another person, such as a broker or nominee, must act promptly to cause the record holder to follow the steps required by the Applicable State Law Appraisal Rights properly and in a timely manner to perfect whatever dissenters' rights of appraisal the beneficial owner may have. The Prospectus Supplement for each Belk Company contains a summary of the Applicable State Law Appraisal Rights for the Existing Belk Shareholders of such Belk Company. In addition, the full text of the Applicable State Law Appraisal Rights applicable to each Belk Company is set forth in Annex B to the applicable Prospectus Supplement for such Belk Company. Any shareholder who wishes to exercise such dissenters' rights of appraisal or wishes to preserve the right to do so should review such summary and Annex B of the Prospectus Supplement for the applicable Belk Company carefully. A failure to timely and properly comply with the procedure specified may result in the loss of Applicable State Law Appraisal Rights. It is a condition to the obligation of New Belk to consummate the Merger with each Belk Company and the Reorganization as a whole that no Existing Belk Shareholder exercise his Applicable State Law Appraisal Rights. The exercise of Applicable State Law Appraisal Rights by any Existing Belk Shareholder will have the effect of (i) requiring New Belk to waive the condition that no Existing Belk Shareholder exercise his Applicable State Law Appraisal Rights or (ii) allowing New Belk to terminate the Reorganization Agreement. See "The Reorganization -- Terms of the Reorganization Agreement." 31 <PAGE> 40 REGULATORY APPROVALS REQUIRED Under the Reorganization Agreement, the obligations of New Belk and the Belk Companies to consummate the Reorganization are conditioned upon receipt of all required regulatory approvals. Under the HSR Act, and the rules promulgated thereunder by the FTC, the Reorganization may not be consummated unless notification has been given and certain information has been furnished to the FTC and the Antitrust Division and the waiting period has expired or been terminated. Pursuant to the HSR Act, on December 19, 1997, John M. Belk and certain Belk Companies filed a Notification and Report Form with the FTC and the Antitrust Division for review in connection with the Reorganization. The 30-day waiting period under the HSR Act applicable to the Reorganization will expire on January 18, 1998, unless terminated early or extended. There can be no assurance that the Reorganization will not be investigated or opposed by the FTC or the Antitrust Division. DETERMINATION OF APPLICABLE EXCHANGE RATIOS The Applicable Exchange Ratios for the Mergers have been calculated to take into account the different financial and operating characteristics of each Belk Company. Although the Belk Companies operate similar businesses, with coordination from BSS, the Belk Companies are separate legal entities governed by separate Boards of Directors. Over time, the Boards of Directors of the Belk Companies have made their own decisions regarding their respective businesses, including decisions regarding store operations, capital structures, investments in other Belk Companies and other securities, capital expenditures, the level of distributions made to its equity owners and the retention of cash in the businesses. As a result of these decisions, the Belk Companies generally have different financial and operating characteristics that make it unlikely that using a single method of determining the value of each of the Belk Companies for purposes of calculating the Applicable Exchange Ratios would be fair to all of the Existing Belk Shareholders. In addition, a number of the Belk Companies own equity interests in other Belk Companies. As a result of these investments, the value of each Belk Company consists not only of the value of its retail department store operations and other directly held assets but also the value of its equity interests in other Belk Companies. To determine exchange ratios for the Mergers that would take into account the different financial and operating characteristics of each of the Belk Companies and the cross investments among the Belk Companies, BSS developed a methodology to determine the Applicable Exchange Ratios based upon the Net Relative Value of each Belk Company. The Applicable Exchange Ratios based upon the Net Relative Value of each Belk Company were determined in accordance with the following steps: - STEP ONE: CALCULATE THE RELATIVE OPERATING VALUE OF EACH BELK COMPANY BY APPLYING DESIGNATED MULTIPLES TO ADJUSTED SALES, ADJUSTED EBITDA, ADJUSTED EBIT, ADJUSTED NET INCOME OR ADJUSTED BOOK EQUITY. Determine the highest of the following five values for each Belk Company with continuing operations: (i) adjusted sales during the fiscal year ended February 1, 1997 (the "Measurement Period") multiplied by six-tenths (0.6), less net debt (defined as total debt less cash) at the end of the Measurement Period; (ii) adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven (7), less net debt at the end of the Measurement Period; (iii) adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by ten (10), less net debt at the end of the Measurement Period; (iv) adjusted net income during the Measurement Period multiplied by fifteen (15); and (v) adjusted book equity multiplied by one (1) (collectively, for each Belk Company, the "Relative Operating Value"). <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> - ------------ ---------------- ---------------- ---------------- ----------------- ---------------- Adjusted Adjusted Adjusted Sales EBITDA multiplied EBIT Adjusted Adjusted Book Relative = multiplied by 0.6 or by 7 or multiplied by 10 or Net Income or Equity Operating less net debt less net debt less net debt multiplied by 15 multiplied by 1 Value ---------------- ---------------- ---------------- ---------------- ---------------- ----------------------------------------------------------------------------------------------------------- Choose Largest Number - ------------ ----------------------------------------------------------------------------------------------------------- </TABLE> 32 <PAGE> 41 The Relative Operating Value for each Belk Company with discontinued operations is the adjusted book equity multiplied by one (the "Adjusted Book Equity Valuation Formula"). - STEP TWO: DETERMINE TOTAL RELATIVE VALUE TO BE ALLOCATED TO THE EXISTING BELK SHAREHOLDERS OF EACH BELK COMPANY BY ADDING TO STEP ONE THE RELATIVE VALUE OF EACH BELK COMPANY'S OWNERSHIP IN OTHER BELK COMPANIES. Add to the amount determined in Step One the product of (i) the percent ownership interest held in other Belk Companies times (ii) the corresponding total relative value (defined as Step One plus Step Two for each Belk Company) of those Belk Companies (for each Belk Company, the "Total Relative Value"). - STEP THREE: DETERMINE NET RELATIVE VALUE BY SUBTRACTING FROM STEP TWO THE RELATIVE VALUE THAT OTHER BELK COMPANIES OWN IN EACH BELK COMPANY. Subtract from the amount derived from Steps One and Two the product of (i) each Belk Company's Total Relative Value times (ii) the percent ownership interest held in such Belk Company by other Belk Companies (for each Belk Company, the "Net Relative Value"). <TABLE> <CAPTION> --------------- ---------------------------- ---------------------------- ---------------------------- STEP ONE STEP TWO STEP THREE ---------------------------- ---------------------------- ---------------------------- <C> <C> <C> <C> <C> <C> <C> Relative Value of Relative Value of direct operations ownership in other Relative Value of other Net Relative = (Relative + Belk Companies - Belk Companies' Value Operating Value) ownership in --------------------------- --------------------------- such Belk Company -------------------------------------------------------------- Total Relative Value ---------------- -------------------------------------------------------------- ---------------------------- </TABLE> - STEP FOUR: CALCULATE THE OWNERSHIP PERCENTAGE OF EACH BELK COMPANY'S EXISTING BELK SHAREHOLDERS IN NEW BELK. Divide the Net Relative Value by the sum of the Net Relative Value amounts determined for each of the Belk Companies (for each Belk Company, the "Ownership Percentage"). <TABLE> <S> <C> <C> --------------------------- Belk Company's (Net Relative Value of such Belk Company ) Existing Belk Shareholders' = ------------------------------------------------------------ Ownership Percentage (Aggregate of the Net Relative Values of all of the Belk in New Belk Companies) --------------------------- </TABLE> - STEP FIVE: CALCULATE THE NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK ALLOCATED TO EACH BELK COMPANY'S EXISTING BELK SHAREHOLDERS. Multiply the Ownership Percentage of each Belk Company's Existing Belk Shareholders and 60,000,007, the number of shares of New Belk Class A Common Stock issued to the Existing Belk Shareholders in the Reorganization. <TABLE> <C> <C> <C> <C> <C> -------------------------------- --------------------------------------- -------------------------------- Number of shares of New Belk Class A Common Stock allocated to each Belk = Ownership Percentage X 60,000,007 Company's Existing Belk Shareholders -------------------------------- --------------------------------------- -------------------------------- </TABLE> - STEP SIX: CALCULATE THE APPLICABLE EXCHANGE RATIO FOR EACH BELK COMPANY. Divide the number of outstanding shares of common stock of each Belk Company by the number of shares of New Belk Class A Common Stock allocated to each Belk Company's Existing Belk Shareholders. <TABLE> <S> <C> <C> <C> <C> -------------------------------- --------------------------------------- -------------------------------- Number of shares Number of outstanding Applicable of New Belk Class A Common shares of common stock of Exchange = Stock allocated to Belk / such Belk Company Ratio Company's Existing Belk held by Existing Shareholders Belk Shareholders -------------------------------- --------------------------------------- -------------------------------- </TABLE> The Prospectus Supplement for each Belk Company describes the calculation of the Applicable Exchange Ratio for the Merger of that Belk Company using the steps set forth above. The multiples used in each of the five valuation formulas were selected by BSS after consultation with its financial advisor. Management is aware that the multiples that would be used in a fair market value appraisal 33 <PAGE> 42 of an individual Belk Company might be different than the multiples used in the Valuation Process and that the multiples that would be used in such a fair market value appraisal could change from time to time in response to market conditions and other factors. If the objective of the Valuation Process was to determine the fair market value of any individual Belk Company, the absolute value of each multiple would be important to the Valuation Process and the Valuation Process would have to take into account any change in a multiple during the Valuation Process in response to market conditions or other factors. The objective of the Valuation Process, however, is not to calculate the fair market value of each Belk Company but to calculate a value for each Belk Company that is fair relative to the value of each other Belk Company. Therefore, what is important to the Valuation Process is not the absolute value of each multiple or whether the Valuation Process takes into account changes in the multiples in response to market conditions, but the value of each multiple relative to the other four multiples. Management believes that each multiple bears an appropriate relationship to each other multiple so that, regardless of market conditions, the Valuation Process will result in a value for each Belk Company that is fair relative to the value of each other Belk Company. The table below sets forth for each Belk Company the Ownership Percentage in New Belk of each Belk Company's Existing Belk Shareholders and the Applicable Exchange Ratio for each Belk Company. The information set forth below was calculated based on the financial statements of each of the Belk Companies for the fiscal year ended February 1, 1997 (the "Fiscal 1997 Financials") in each case as prepared by BSS, and, as a result, the Applicable Exchange Ratios do not take into account the results of operation of any Belk Company since February 1, 1997. Certain financial information from the Fiscal 1997 Financials which has been used to calculate the Applicable Exchange Ratios has been adjusted to take into account unusual items and to reflect only the direct operating expenses of each Belk Company. The adjustments for each Belk Company are described in the Prospectus Supplement applicable to such Belk Company. In addition, the calculations assume consummation of all of the Mergers and the Reorganization and the consummation of the Belk-Simpson Plan of Reorganization. If the Reorganization is consummated with less than all of the Belk Companies participating in the Reorganization, the Ownership Percentage and Applicable Exchange Ratios set forth below will be different depending on the Belk Companies that participate in the Reorganization. <TABLE> <CAPTION> OWNERSHIP PERCENTAGE OF APPLICABLE BELK COMPANY NEW BELK EXCHANGE RATIO ------------ ------------- -------------- <S> <C> <C> Belk-Simpson Company of Paragould, Arkansas, Inc. .......... 0.04% 74.3274 Belk Department Store of Stuttgart, Ark., Inc. ............. 0.13 5.5939 Belk-Lindsey Stores, Inc. .................................. 2.67 5.6854 Belk's Department Store of Albany, Georgia.................. 0.27 22.9358 Belk of Americus, Ga., Inc. ................................ 0.04 13.2469 Belk of Athens, Ga., Inc. .................................. 0.49 57.4874 Belk-Simpson Co., of Bainbridge, Ga., Inc. ................. 0.21 52.0164 Belk of Canton, Ga., Inc. .................................. 0.09 29.6643 Belk-Rhodes Company, of Carrollton, Ga. .................... 0.66 31.6576 Belk's Department Store of Cartersville, Georgia, Incorporated.............................................. 0.22 31.3416 Belk of Cornelia, Ga., Inc. ................................ 0.21 37.1607 Belk of Covington, Ga., Inc. ............................... 0.23 35.3836 Belk of Dalton, Ga., Inc. .................................. 0.43 53.0357 Belk-Matthews Company of Dublin, Georgia.................... 0.48 59.8273 Belk of Hartwell, Ga., Inc. ................................ 0.08 27.4919 Belk of LaGrange, Ga., Inc. ................................ 1.19 0.3854 Belk of Lawrenceville, Ga., Inc. ........................... 0.24 32.2086 Belk-Matthews Company of Macon, Georgia..................... 1.00 100.3514 Belk-Matthews Company of Milledgeville, Ga., Inc. .......... 0.44 37.1292 Belk of Monroe, Ga., Inc. .................................. 0.08 16.8846 Belk of Newnan, Ga., Inc. .................................. 0.08 18.6079 </TABLE> 34 <PAGE> 43 <TABLE> <CAPTION> OWNERSHIP PERCENTAGE OF APPLICABLE BELK COMPANY NEW BELK EXCHANGE RATIO - ------------ ------------- -------------- <S> <C> <C> Belk-Rhodes Company, (Rome, Georgia)........................ 0.47 27.9926 Belk of Statesboro, Ga., Inc. .............................. 0.00 24.9249 Belk of Thomaston, Ga., Inc. ............................... 0.88 0.4198 Belk of Toccoa, Ga., Inc. .................................. 0.21 30.4792 Belk-Matthews Company, Vidalia, Georgia, Inc. .............. 0.36 51.6141 Belk of Washington, Ga., Inc. .............................. 0.05 27.4186 Belk of Waycross, Ga., Inc. ................................ 1.61 15.6892 Belk-Simpson Company of Corbin, Kentucky, Incorporated...... 0.47 107.7843 Belk-Simpson Company of Harlan, Kentucky, Incorporated...... 0.34 128.1260 Belk of Miss., Inc. ........................................ 1.29 9.2288 Belk Department Store of Ahoskie, N.C., Inc. ............... 0.22 52.4278 Belk's Department Store of Albemarle, North Carolina, Incorporated.............................................. 0.14 37.9201 Belk of Asheboro, N.C., Inc. ............................... 0.65 112.9932 Belk's Department Store of Asheville, North Carolina, Incorporated.............................................. 0.38 19.5822 Belk-Matthews Company....................................... 0.05 28.0446 Belk's Department Store of Boone, North Carolina, Incorporated.............................................. 0.66 141.8798 Belk's Department Store of Brevard, N.C., Incorporated...... 0.25 39.2961 Belk-Beck Company of Burlington, North Carolina, Inc. ...... 0.80 108.1637 Belk Brothers Company....................................... 16.01 96.5373 Belk Enterprises, Inc. ..................................... 26.37 18.3948 Belk-Matthews Company of Cherryville, N.C., Incorporated.... 0.04 27.9410 Belk Department Store of Clinton, N.C., Inc. ............... 0.68 110.9315 Belk's Department Store of Dunn, North Carolina, Incorporated.............................................. 1.03 69.7736 Belk Department Store of Eden, N.C., Inc. .................. 0.16 75.2272 Belk Department Store of Elkin, N.C., Inc. ................. 0.07 46.7363 Belk Department Store of Forest City, N.C., Inc. ........... 0.45 35.9084 Hudson-Belk Co. of Fuquay-Varina, N.C., Inc. ............... 0.35 86.6616 Matthews-Belk Company....................................... 2.43 36.3163 Belk Department Store of Greenville, N.C., Inc. ............ 1.52 157.7529 Belk-Simpson Company of Hendersonville, N.C., Incorporated.............................................. 0.67 190.3282 Belk Department Store of Hickory, N.C., Inc. ............... 1.61 177.3438 Belk-Beck Co. of High Point, N.C., Inc. .................... 0.37 36.7718 Belk's Department Store of Jacksonville, N.C., Inc. ........ 1.92 114.6357 Belk's Department Store of Lenoir, North Carolina, Incorporated.............................................. 0.41 38.0651 Belk Department Store of Lincolnton, N.C., Inc. ............ 0.41 228.2966 Belk Brothers of Monroe, North Carolina, Incorporated....... 0.99 146.3804 Belk's Department Store of Morehead City, N.C., Inc. ....... 0.70 90.4704 Belk's Department Store of Mount Airy, North Carolina, Incorporated.............................................. 0.12 29.8331 Belk's Department Store of New Bern, N.C., Incorporated..... 0.32 82.0669 Hudson-Belk Company......................................... 4.77 37.2881 Belk Department Store of Reidsville, N.C., Inc. ............ 0.13 81.9799 Belk's Department Store of Rockingham, N.C., Incorporated... 0.18 27.6841 Belk-Harry Company -- Salisbury, N.C. ...................... 0.48 25.8928 Belk Department Store of Shelby, N.C., Inc. ................ 0.93 44.5544 Belk of Siler City, N.C., Inc. ............................. 0.00 4.9121 Belk Department Store of Waynesville, N.C., Inc. ........... 0.26 60.5204 </TABLE> 35 <PAGE> 44 <TABLE> <CAPTION> OWNERSHIP PERCENTAGE OF APPLICABLE BELK COMPANY NEW BELK EXCHANGE RATIO - ------------ ------------- -------------- <S> <C> <C> Belk Department Store of Wilkesboro, N.C., Inc. ............ 0.20 72.8547 Belk's Department Store, Incorporated of Aiken, South Carolina.................................................. 0.14 44.8539 Gallant-Belk Company........................................ 1.99 77.2560 Belk's Department Store of Batesburg, S.C., Inc. ........... 0.06 49.1062 Belk-Simpson Company, Incorporated of Beaufort, South Carolina.................................................. 0.52 148.8811 Belk's Department Store of Camden, S.C., Incorporated....... 0.82 82.5202 Belk Department Store of Charleston, S.C., Inc. ............ 1.57 67.0371 Belk's Department Store of Conway, S.C., Incorporated....... 0.12 41.2481 Belk's Department Store of Florence, S.C., Incorporated..... 1.13 110.9899 Belk's Department Store of Gaffney, South Carolina, Incorporated.............................................. 0.08 24.6978 Belk of Georgetown, S.C., Inc. ............................. 0.16 51.7942 Belk-Simpson Company, Greenville, South Carolina............ 1.88 13.9550 Belk Department Store of Greenwood, S.C., Inc. ............. 0.41 128.1756 Belk's Department Store of Hartsville, S.C., Incorporated... 0.15 104.5548 Belk's Department Store, Incorporated, of Lake City, South Carolina.................................................. 0.06 24.3136 Belk's Department Store of Lancaster, S.C., Inc. ........... 0.97 60.4771 Belk's Department Store of Laurens, South Carolina, Incorporated.............................................. 0.31 40.5274 Belk of Orangeburg, S.C., Inc. ............................. 0.70 89.8529 Belk of Seneca, S.C., Inc. ................................. 0.24 42.1567 Belk of Spartanburg, S.C., Inc. ............................ 0.77 91.8256 Belk of Union, S.C., Inc. .................................. 0.03 19.5084 Belk of Walterboro, S.C., Inc. ............................. 0.10 103.0616 Belk's Department Store of Winnsboro, S.C., Incorporated.... 0.06 26.8157 Parks-Belk Company of Clarksville, Tennessee................ 0.24 39.5681 Belk Department Store of Greenville, Texas, Inc. ........... 0.02 65.7339 Belk's Department Store of Paris, Texas, Inc. .............. 0.05 67.2357 Parks-Belk Company, Incorporated............................ 0.92 28.2089 Belk of Danville, Va., Inc. ................................ 1.11 139.7184 Belk of Lynchburg, Va., Inc. ............................... 0.03 37.0704 Belk Stores of Virginia, Inc. .............................. 0.53 93.2160 Belk of Roanoke, Va., Inc. ................................. 0.03 21.2688 Belk of South Boston, Va., Inc. ............................ 0.03 77.4474 Belk of Dawson, Ga., Inc. .................................. 0.05 28.7857 Belk of Elberton, Ga., Inc. ................................ 0.04 29.2681 Belk of Thomson, Ga., Inc. ................................. 0.07 27.2828 Belk Department Store of Edenton, N.C., Inc. ............... 0.08 33.8252 Belk of Thomasville, N.C., Inc. ............................ 0.09 19.8801 Belk's Department Store of Chesterfield, S.C., Incorporated.............................................. 0.05 17.9776 Belk's Department Store of Columbia, South Carolina, Incorporated.............................................. 0.15 7.3208 Belk Finance Company........................................ 2.42 1,210.1548 Belk-Simpson Realty Company................................. 0.04 30.2356 Belk of Lawrenceville, Va., Inc. ........................... 0.03 377.5894 Belk Realty of Radford, Va., Inc. .......................... 0.00 74.5480 Belk Realty of Staunton, Va., Inc. ......................... 0.01 7.5568 Belk Outlet Center, Inc. ................................... 0.00 49.4996 </TABLE> 36 <PAGE> 45 The number of shares and percentage of New Belk Class A Common Stock to be allocated to each Existing Belk Shareholder are set forth on Annex C to this Proxy Statement/Prospectus. In connection with the Reorganization, all shares of common stock of any of the Belk Companies owned by other Belk Companies will be canceled, except that shares of common stock of Belk Department Store of Camden, S.C., Incorporated, Parks-Belk Company of Clarksville, Tennessee and Belk-Simpson Realty Company owned by Belk-Simpson will not be canceled, but will be converted in the Belk-Simpson Merger into a total of 166,319.8 shares of New Belk Class A Common Stock. In addition, Belk-Simpson's member interest in TAGS will be converted in the Belk-Simpson Merger into 79,854.2 shares of New Belk Class A Common Stock (thus giving Belk-Simpson a total of 246,174 shares of New Belk Class A Common Stock to be issued in the Belk-Simpson Merger). Because Belk-Simpson will be a wholly owned subsidiary of New Belk, the ownership of New Belk Class A Common Stock by Belk-Simpson will have no impact on other New Belk Stockholders. In addition, Delaware law will prohibit Belk-Simpson from exercising voting rights with respect to its New Belk Class A Common Stock. FAIRNESS OPINION Willamette, an independent financial advisory firm with substantial retail industry experience, was engaged to render an opinion as to (i) the reasonableness of the Valuation Process and (ii) the fairness, from a financial point of view, of the Valuation Process to the Existing Belk Shareholders. The Fairness Opinion is addressed to the Belk Companies and their Boards of Directors. The full text of the Fairness Opinion, which contains a description of the assumptions and qualifications applicable to the review and analysis, is set forth in Annex D and should be read in its entirety. The summary of the Fairness Opinion set forth below does not purport to be a complete description of the analyses performed, or the matters considered, by Willamette in rendering its opinion. Willamette believes that its analyses and the description set forth below must be considered as a whole and that selecting portions of such description or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying the Fairness Opinion. In rendering its Fairness Opinion, Willamette applied its judgment to a variety of complex analyses and assumptions which are not readily susceptible to description beyond that set forth herein. The fact that any specific analysis is referred to in the summary is not meant to indicate that such analysis was given greater weight than any other analysis. The Fairness Opinion assumes that all Belk Companies participate in the Reorganization and does not attempt to address the fairness of the allocations of New Belk Class A Common Stock that result under possible combinations involving less than all of the Belk Companies. Although Willamette was advised that certain assumptions were appropriate (described more fully below), no conditions or limitations were imposed on the scope of the investigation by Willamette or the methods and procedures to be followed by Willamette in rendering the Fairness Opinion. Management of BSS considered the qualifications and experience of one financial advisory firm other than Willamette. After interviewing Willamette, however, management of BSS determined that Willamette had the experience and qualifications necessary to render the Fairness Opinion. Qualifications to Fairness Opinion. The Fairness Opinion addresses the reasonableness of the Valuation Process and the fairness, from a financial point of view, of the Valuation Process to the Existing Belk Shareholders, but it does not address whether the actual consideration to be received by each of the Existing Belk Shareholders in the Reorganization is fair from a financial point of view. Willamette was not requested to and did not (a) select the method of determining the Applicable Exchange Ratios; (b) make any recommendations to the Existing Belk Shareholders or the Belk Companies with respect to whether to approve or reject the Reorganization; or (c) express any opinion as to (i) the impact of the Reorganization with respect to any Existing Belk Shareholder in any Belk Company who does not participate in the Reorganization, (ii) the tax consequences of the Reorganization for Existing Belk Shareholders or for New Belk, (iii) the proposed capital structure of New Belk or its impact on the financial performance of New Belk, (iv) whether or not alternative methods of determining the relative amounts of New Belk Class A Common 37 <PAGE> 46 Stock to be issued would have also provided fair results or results substantially similar to those achieved using the Valuation Process or (v) the fairness or advisability of alternatives to the Reorganization. Further, Willamette did not express any opinion as to the fairness of any terms of the Reorganization, other than as described in the Fairness Opinion, including, without limitation: (a) the fairness of Reorganization Expenses borne by BSS or (b) the value of the New Belk Class A Common Stock to be issued in the Reorganization. See "-- Assumptions." In connection with the Fairness Opinion, Willamette did not perform an independent appraisal of the assets and liabilities of any of the Belk Companies. Experience of Willamette. Since its founding in 1969, Willamette has provided information, research, investment banking, consulting and valuation services to clients throughout the United States, including over 50 companies engaged in the management and operation of retail businesses. The investment banking activities of Willamette include financial advisory services, asset and security valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Willamette, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions and reorganizations and for estate, tax, corporate and other purposes. Willamette has performed valuation services for other retail businesses like the businesses operated by the Belk Companies. Willamette was selected because of its experience in providing similar services to retail businesses and other parties in connection with transactions comparable to the Reorganization. Summary of Materials Considered and Investigation Undertaken. Willamette's analysis of the Reorganization involved a review and analysis of the following information, which Willamette represented was a reasonable and adequate basis for its opinion: (i) general economic history and outlook factors; (ii) the retailing business industry history and outlook factors; (iii) financial market historical trends and outlook factors; (iv) financial and operational data regarding each of the Belk Companies for the previous five years and the outlook for each company; and (v) transactions of stock in companies in the same and similar lines of business over the pervious five years. Assumptions. In rendering its opinion, Willamette relied, without independent verification, on the accuracy and completeness in all material respects of all financial and other information that was furnished or otherwise communicated to Willamette. Willamette also relied on assurances that: (a) the calculations made to determine the Applicable Exchange Ratios were accurate and consistent with the methodologies described herein; (b) any financial projections or pro forma statements or adjustments provided to Willamette (including the budgets and projections, the estimated liquidation and going concern values and the pro forma budgets and projections related to the Belk Companies) were in the judgment of BSS reasonably prepared or adjusted on bases consistent with actual historical experience or reflecting the best currently available estimates and good faith judgments; (c) no material changes have occurred in the information reviewed between the date the information was provided and the date of the Fairness Opinion; and (d) BSS is not aware of any information or facts regarding the Belk Companies or New Belk that would cause the information supplied to Willamette to be incomplete or misleading in any material respect. Willamette stated that nothing came to its attention that would lead it to believe any of the foregoing is inaccurate, incomplete or misleading in any material respect. Conclusions. Willamette concluded that, based upon and subject to its analysis and assumptions and limiting conditions, and as of the date of the Fairness Opinion, the Valuation Process is reasonable and is fair, from a financial point of view, to the Existing Belk Shareholders. Compensation and Material Relationships. Willamette has been paid a fee of $150,000 by BSS for assisting in evaluating the reasonableness of the methodologies used to determine the Applicable Exchange Ratios and delivering the Fairness Opinion. In addition, Willamette will be reimbursed for all reasonable out-of-pocket expenses, including legal fees, and will be indemnified against certain liabilities, including certain liabilities under the securities laws. The fee arrangement was negotiated between BSS and Willamette. 38 <PAGE> 47 Payment of the fee to Willamette is not dependent upon completion of the Reorganization or the opinion expressed in the Fairness Opinion. BSS has also engaged Willamette to render an opinion, as of the Effective Time, of the aggregate fair market value of the New Belk Class A Common Stock issued in the Reorganization. For such services, Willamette will be paid a fee of $25,000, in addition to reimbursement for all reasonable out-of-pocket expenses. Such opinion will support the accounting for the Reorganization. See "The Reorganization -- Accounting Treatment." Willamette was also previously retained by the estate of Thomas M. Belk to arrive at an independent professional appraisal opinion of the fair market value of certain minority interests in the Belk Companies owned or taxable in the estate as of Thomas M. Belk's death on January 25, 1997. For such services, the estate has paid Willamette a fee of $80,000, plus reasonable out-of-pocket expenses. Apart from Willamette's assistance with the Reorganization and the matters discussed above, Willamette has not rendered any consulting or related services to BSS, the other members of the Boards of Directors of the Belk Companies, the Belk Companies or any of their affiliates. NEW BELK New Belk is a Delaware corporation organized in November 1997. New Belk has not conducted any substantial business activities to date, other than those incident to its formation, its execution of the Reorganization Agreement and related agreements and its participation in the preparation of this Proxy Statement/Prospectus. New Belk will be the surviving corporation in the Reorganization. Accordingly, the business of New Belk following the Reorganization will be the business currently conducted by the Belk Companies. See "Business of New Belk." CAPITALIZATION The following table sets forth the capitalization of the Belk Companies on a combined basis as of November 1, 1997 and the pro forma capitalization of New Belk after giving effect to the Reorganization. This table should be read in conjunction with the audited historical combined financial statements and the unaudited pro forma combined condensed financial statements included elsewhere in this Proxy Statement/Prospectus, including the notes thereto. <TABLE> <CAPTION> AS OF NOVEMBER 1, 1997 ------------------------ HISTORICAL PRO FORMA ---------- ---------- (IN THOUSANDS) <S> <C> <C> Borrowings.................................................. $ 429,919 $ 440,893 Total Shareholders' Equity.................................. 679,615 767,315 Total Capitalization........................................ 1,109,534 1,208,208 </TABLE> UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements are based upon the financial statements of the Belk Companies, combined and adjusted to give effect to the Reorganization. The following unaudited pro forma combined condensed statements of income for the year ended February 1, 1997 and for the nine months ended November 1, 1997 give effect to the Reorganization as if it had occurred at the beginning of the first period presented. The following unaudited pro forma combined condensed balance sheet at November 1, 1997 gives effect to the Reorganization as if it had occurred on such date. These unaudited pro forma combined condensed financial statements should be read in conjunction with the audited historical combined financial statements and unaudited interim combined financial statements, including the notes thereto, included elsewhere in this Proxy Statement/Prospectus. 39 <PAGE> 48 The unaudited pro forma combined condensed financial statements are not necessarily indicative of the results of operations or financial position of New Belk that would have occurred had the Reorganization occurred at the beginning of the first period presented or on the date indicated, nor are they necessarily indicative of the future operating results or financial position of New Belk. The unaudited pro forma adjustments are based upon information set forth in this Proxy Statement/Prospectus and certain assumptions included in the notes to be unaudited pro forma combined condensed financial statements. Management believes that the pro forma assumptions are reasonable under the circumstances. In addition, as of the date of this Proxy Statement/Prospectus, management believes that the unaudited pro forma combined condensed financial statements reflect the impact on the operations and liquidity of New Belk of all material events or changes expected to result from the Reorganization. 40 <PAGE> 49 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME YEAR ENDED FEBRUARY 1, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> HISTORICAL ------------------------------ THE BELK LEGGETT COMPANIES ACQUISITION (1) THE BELK FOR THE YEAR FOR THE NINE LEGGETT COMPANIES THE BELK ENDED MONTHS ENDED ACQUISITION INCLUDING COMPANIES FEBRUARY 1, NOVEMBER 1, PRO FORMA LEGGETT PRO FORMA COMBINED 1997 1996 ADJUSTMENTS ACQUISITION ADJUSTMENTS PRO FORMA ------------ --------------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> Revenues.................... $1,772,613 $218,291 $ -- $1,990,904 $69,332(2) $ 2,060,236 Cost of goods sold (including occupancy and buying expenses).......... 1,205,687 148,351 -- 1,354,038 46,108(2) 1,400,146 Selling, general and administrative expenses... 470,018 69,393 415(3) 539,826 23,257(6) 563,083 ---------- -------- ------- ---------- ------- ----------- Income from operations...... 96,908 547 (415) 97,040 (33) 97,007 Interest expense............ (27,554) (2,905) (4,646)(4) (35,105) (541) (35,646) Interest Income............. 4,873 132 -- 5,005 42 5,047 Gain (loss) on sale of property and equipment.... 21,328 (73) -- 21,255 16(2) 21,271 Gain on sale of investments............... 1,882 -- -- 1,882 -- 1,882 Other income (expense), net....................... 1,816 (4,746) 3,078(3) 148 89 237 ---------- -------- ------- ---------- ------- ----------- Income (loss) from continuing operations before income taxes and equity in earnings of unconsolidated entities... 99,253 (7,045) (1,983) 90,225 (427) 89,798 Income taxes................ 38,802 (374) (2,338)(5) 36,090 (171)(5) 35,919 ---------- -------- ------- ---------- ------- ----------- Income (loss) from continuing operations before equity in earnings of unconsolidated entities.................. 60,451 (6,671) 355 54,135 (256) 53,879 Equity in earnings of unconsolidated entities, net of income taxes....... 4,046 -- -- 4,046 (974)(2) 3,072 ---------- -------- ------- ---------- ------- ----------- Income (loss) from continuing operations..... $ 64,497 $ (6,671) $ 355 $ 58,181 $(1,230) $ 56,951 ========== ======== ======= ========== ======= =========== Income from continuing operations per share...... $ .95 =========== Pro forma weighted average shares outstanding........ 60,000,008 =========== </TABLE> - --------------- (1) The Leggett Acquisition (as defined herein) includes the operations of the Leggett companies acquired during the year ended February 1, 1997. The transaction was accounted for as a purchase acquisition for accounting purposes. The Leggett Acquisition statement of income reflects operations from February 4, 1996 to the date of acquisition. The combined pro forma assumes the Leggett purchase occurred on February 4, 1996 and includes 12 months of operations of the Leggett stores. (2) Adjustments to reflect Belk-Simpson as if the retail operations of Belk-Simpson had been acquired by the Belk Companies on February 4, 1996. 41 <PAGE> 50 <TABLE> <CAPTION> LEGGETT THE BELK ACQUISITION COMPANIES PRO FORMA PRO FORMA ADJUSTMENTS ADJUSTMENTS ----------- ----------- <S> <C> <C> (3) Adjustments to selling, general and administrative expense and other income (expense) consist of the following: To record amortization of goodwill from the Leggett Acquisition. Goodwill is being amortized over a period of 15 years............................................ $ 857 $ -- To record the increase in depreciation expense related to the allocation of the fair market values to fixed assets. The average remaining life for fixed assets is 25 years............................................... 73 -- To record the increase in amortization expense related to the allocation of the fair market values to leasehold improvements. The average remaining life for leasehold improvements is 4.5 years.................... 1,656 -- To eliminate one time expenses related to the Leggett Acquisition............................................ (5,249) -- ------- -------- $(2,663) $ -- ======= ======== (4) To record the increase in interest expense related to debt acquired to fund the Leggett Acquisition.......... $(4,646) $ -- ======= ======== (5) Adjustment to reflect income taxes based upon the pro forma pre-tax income as if the Belk Companies had been subject to federal and state income taxes at a pro forma effective tax rate of 40%........................ $(2,338) $ (171) ======= ======== (6) Adjustments to selling, general and administrative expense consist of the following: To record the pro forma increase in depreciation related to the allocation of fair market values to fixed assets based on the estimated fair market value of the combined Belk Companies of $820 million. The average remaining life for fixed assets is 23 years.... $ -- $ 2,430 To record Belk-Simpson's retail operations. (see note (2) above)............................................. -- 20,827 ------- -------- $ -- $ 23,257 ======= ======== </TABLE> 42 <PAGE> 51 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME NINE MONTHS ENDED NOVEMBER 1, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> PRO FORMA --------------------------- HISTORICAL COMBINED ADJUSTMENTS COMBINED ------------------- ----------- ---------- <S> <C> <C> <C> Revenues........................................ $1,342,918 $45,399(1) $1,388,317 Cost of goods sold (including occupancy and buying expenses).............................. 907,654 30,360(1) 938,014 Selling, general and administrative expenses.... 380,793 15,950(2) 396,743 ---------- ------- ---------- Income from operations.......................... 54,471 (911) 53,560 Interest expense................................ (27,472) (454)(1) (27,926) Interest income................................. 2,559 -- 2,559 Gain on sale of property and equipment.......... (177) (1)(1) (178) Gain (loss) on sale of investments.............. 416 -- 416 Other income (expense), net..................... (335) 100(1) (235) ---------- ------- ---------- Income from continuing operations before income taxes and equity in earnings of unconsolidated entities...................................... 29,462 (1,266) 28,196 Income taxes.................................... 11,528 (250)(3) 11,278 ---------- ------- ---------- Income from continuing operations before equity in earnings of unconsolidated entities........ 17,934 (1,016) 16,918 Equity in earnings of unconsolidated entities, net of income taxes........................... 442 (442)(1) -- ---------- ------- ---------- Income (loss) from continuing operations........ $ 18,376 $(1,458) $ 16,918 ========== ======= ========== Income from continuing operations per share..... $ .28 ========== Pro forma weighted average shares outstanding... 60,000,008 ========== </TABLE> - --------------- (1) Adjustments to reflect Belk-Simpson as if the retail operations of Belk-Simpson had been acquired by the Belk Companies on February 4, 1996 <TABLE> <CAPTION> PRO FORMA ADJUSTMENTS ----------- <S> <C> (2) Adjustments to selling, general and administrative expense consist of the following: To record the pro forma increase in depreciation related to the allocation of fair market values to fixed assets based on the estimated fair market value of the combined Belk Companies of $820 million. The average remaining life for fixed assets is 23 years.... $ 1,823 To record Belk-Simpson's retail operations. (See note (1) above.)............................................ 14,127 ------- $15,950 ======= (3) Adjustment to reflect income taxes based upon the pro forma pre-tax income as if the Belk Companies had been subject to federal and state income taxes at a pro forma effective tax rate of 40%. ...................... $ (250) ======= </TABLE> 43 <PAGE> 52 UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF NOVEMBER 1, 1997 (IN THOUSANDS) <TABLE> <CAPTION> PRO FORMA --------------------------- HISTORICAL COMBINED ADJUSTMENTS COMBINED ------------------- ----------- ---------- <S> <C> <C> <C> Current Assets: Cash and cash equivalents..................... $ 18,063 $ 8,748(1) $ 26,811 Accounts receivable, net...................... 325,954 12,537(1) 338,491 Merchandise inventory......................... 527,687 19,471(1) 547,158 Other current assets.......................... 45,427 (4,121)(2) 41,306 ---------- -------- ---------- Total current assets............................ 917,131 36,635 953,766 Investments..................................... 72,496 (36,860)(1) 35,636 Property and equipment, net..................... 396,743 74,726(3) 471,469 Other assets.................................... 49,627 (201)(4) 49,426 ---------- -------- ---------- Total assets.................................... $1,435,997 $ 74,300 $1,510,297 ========== ======== ========== Current Liabilities: Accounts payable.............................. $ 159,337 $ 10,910(5) $ 170,247 Accrued expenses.............................. 67,013 -- 67,013 Accrued income taxes.......................... -- -- -- Lines of credit and notes payable............. 186,766 10,974(1) 197,740 Current installment of long-term debt and capital lease obligations.................. 34,559 -- 34,559 ---------- -------- ---------- Total current liabilities....................... 447,675 21,884 469,559 Deferred income taxes........................... 38,277 (30,031)(6) 8,246 Long-term debt and capital lease obligations, excluding current installments................ 208,594 -- 208,594 Deferred compensation and other non-current liabilities................................... 50,672 (5,253)(1) 45,419 ---------- -------- ---------- Total liabilities............................... 745,218 (13,400) 731,818 ---------- -------- ---------- Deferred income................................. 11,164 -- 11,164 ---------- -------- ---------- Stockholders' Equity: Common stock.................................. 70,838 1,483(1) 72,321 Paid in capital............................... 470 51,462(1) 51,932 Net unrealized gain(loss) on investments...... 27,112 (14,372)(1) 12,740 Retained earnings............................. 581,195 49,127(7) 630,322 ---------- -------- ---------- Total stockholders' equity...................... 679,615 87,700 767,315 ---------- -------- ---------- $1,435,997 $ 74,300 $1,510,297 ========== ======== ========== </TABLE> 44 <PAGE> 53 NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET <TABLE> <CAPTION> PRO FORMA ADJUSTMENTS ----------- <S> <C> <C> (1) Adjustments to reflect Belk-Simpson as if the retail operations had been acquired on November 1, 1997. (2) To reduce the deferred tax assets valuation reserve to recognize net operating losses and other carryforwards that will be available after the Reorganization.................. $2,303 Adjustments to reflect Belk-Simpson as if the retail operations had been acquired on November 1, 1997............ (6,424) -------- $(4,121) ======== (3) Adjustment to reflect the Reorganization accounted for under the purchase method. Amount represents the estimated fair market value in excess of historical cost amounts, which has been allocated to property and equipment.................... $51,462 Adjustments to reflect Belk-Simpson as if the retail operations had been acquired on November 1, 1997. .......... 23,264 -------- $74,726 ======== (4) To reclass capitalized Reorganization costs incurred through November 1, 1997............................................ $(1,093) Adjustments to reflect Belk-Simpson as if the retail operations had been acquired on November 1, 1997. .......... 892 -------- $ (201) ======== (5) To record the anticipated costs incurred in connection with the Reorganization. The costs are estimated to be $4,750,000 of which $1,093,000 was paid at November 1, 1997. .......... $ 3,657 Adjustments to reflect Belk-Simpson as if the retail operations had been acquired on November 1, 1997. .......... $ 7,253 -------- $10,910 ======== (6) To eliminate the deferred tax liability related to the gain on the sale of BAC.......................................... $(29,897) Adjustments to reflect Belk-Simpson as if the retail operations had been acquired on November 1, 1997............ (134) -------- $(30,031) ======== (7) To eliminate the deferred tax liability related to the gain on the sale of BAC.......................................... $29,897 Adjustments to reflect Belk-Simpson as if the retail operations had been acquired on November 1, 1997............ 19,230 -------- $49,127 ======== </TABLE> 45 <PAGE> 54 SELECTED HISTORICAL COMBINED AND UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION The selected historical combined financial information of the Belk Companies presented below under the captions "Selected Statement of Income Data" and "Selected Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended February 1, 1997, has been derived from the historical combined financial statements of the Belk Companies. The historical combined financial statements as of February 3, 1996 and February 1, 1997 and for each of the years in the three-year period ended February 1, 1997 have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Such historical combined financial statements, and the report thereon, are included elsewhere in this Proxy Statement/Prospectus. The summary historical combined information of the Belk Companies presented below for the nine-month periods ended November 2, 1996 and November 1, 1997, and as of November 1, 1997 has been derived from the unaudited historical combined financial statements of the Belk Companies included elsewhere in this Proxy Statement/Prospectus. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. The information presented below under the caption "Selected Operating Data" is unaudited. The following summary unaudited combined pro forma financial information of New Belk has been derived from, or prepared on a basis consistent with, the unaudited pro forma combined condensed financial statements included elsewhere in this Proxy Statement/Prospectus. The pro forma information gives effect to the Reorganization as if it had occurred at the beginning of the first period presented. This data is presented for illustrative purposes only and is not indicative of the combined results of operations or financial position that would have occurred if the Reorganization had been consummated at the beginning of each period presented or on the dates indicated, nor is it necessarily indicative of the future operating results or financial position of New Belk. 46 <PAGE> 55 <TABLE> <CAPTION> HISTORICAL ----------------------------------------------------------------------------------------------- FISCAL YEAR ENDED NINE MONTHS ENDED ------------------------------------------------------------------- ------------------------- FEBRUARY 2, FEBRUARY 1, JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1993(1) 1994(1) 1995(1) 1996(1) 1997(1)(2) 1996(1) 1997(1) ----------- ----------- ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> <C> <C> <C> <C> SELECTED STATEMENT OF INCOME DATA: Revenues............. $1,661,942 $1,674,373 $1,694,422 $1,685,470 $1,772,613 $1,138,615 $1,342,918 Cost of goods sold... 1,131,154 1,151,942 1,151,713 1,149,270 1,205,687 774,294 907,654 Depreciation and amortization....... 41,740 44,104 46,762 50,832 54,198 47,908 39,608 Income from continuing operations......... 54,348 40,715 46,893 42,518 64,497 22,613 18,376 Income from discontinued operations(4)...... 1,445 1,687 1,731 1,298 36,873 (3,567) (5,143) Net income........... 55,793 53,923 48,624 43,816 101,370 19,046 13,233 Income from continuing operations per share.............. n/a n/a n/a n/a n/a n/a n/a Average number of shares outstanding........ n/a n/a n/a n/a n/a n/a n/a SELECTED BALANCE SHEET DATA: Accounts receivable, net................ 275,141 274,011 262,986 263,161 335,914 312,450 325,954 Merchandise inventories........ 347,619 356,000 349,610 365,902 425,415 528,589 527,687 Working capital...... 479,788 498,845 514,228 423,543 442,753 354,097 469,454 Total assets......... 1,152,706 1,152,071 1,159,735 1,260,979 1,358,900 1,524,065 1,435,997 Short-term debt...... 21,206 20,711 11,000 116,327 187,272 316,864 186,766 Long-term debt....... 267,609 240,923 203,742 169,264 207,496 345,452 231,841 Capitalized lease obligations........ 12,268 11,487 10,708 9,177 8,514 8,683 11,312 Shareholders' equity............. 635,705 672,498 717,284 748,706 672,016 590,580 679,615 Book value per share.............. n/a n/a n/a n/a n/a n/a n/a SELECTED OPERATING DATA: Number of stores at end of period...... 227 225 221 216 250 253 225(5) Comparable store net revenue increases (decreases)........ 2.7% 4.7% 2.4% (2.3)% 2.3% 2.0% 1.7% <CAPTION> PRO FORMA --------------------------- FISCAL NINE YEAR MONTHS ENDED ENDED ------------- ----------- FEBRUARY 1, NOVEMBER 1, 1997(1)(2)(3) 1997(1)(3) ------------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> SELECTED STATEMENT OF INCOME DATA: Revenues............. $ 2,060,236 $ 1,388,317 Cost of goods sold... 1,400,146 938,014 Depreciation and amortization....... 49,888 40,929 Income from continuing operations......... 56,951 16,918 Income from discontinued operations(4)...... n/a n/a Net income........... n/a n/a Income from continuing operations per share.............. 0.95 0.28 Average number of shares outstanding........ 60,000,008 60,000,008 SELECTED BALANCE SHEET DATA: Accounts receivable, net................ n/a 338,491 Merchandise inventories........ n/a 547,158 Working capital...... n/a 484,207 Total assets......... n/a 1,510,297 Short-term debt...... n/a 197,740 Long-term debt....... n/a 231,841 Capitalized lease obligations........ n/a 11,312 Shareholders' equity............. n/a 767,315 Book value per share.............. n/a 12.79 SELECTED OPERATING DATA: Number of stores at end of period...... 250 225(5) Comparable store net revenue increases (decreases)........ 2.2% 1.3% </TABLE> - --------------- All years include 52 weeks (364 days) except that the fiscal year ended February 1, 1997 includes 365 days, the fiscal year ended February 3, 1996 includes 368 days, and the fiscal year ended February 2, 1993 includes 371 days. (1) The historical financial information includes financial information for Belk-Simpson on an equity basis. The pro forma financial information includes the financial information of Belk-Simpson on a consolidated basis. (2) In November 1996, Belk of Virginia, Inc. acquired a controlling interest in various corporations that owned and operated 42 Leggett stores. The historical financial information for the fiscal year ended February 1, 1997 includes only three months of financial information for the acquired Leggett stores. The pro forma financial information for the fiscal year ended February 1, 1997 includes a full fiscal year of financial information for the Leggett stores. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock expected to be outstanding upon consummation of the Reorganization, which includes the one share of New Belk Class A Common Stock issued in connection with the formation of New Belk, but excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Applicable Exchange Ratios." (4) Income from discontinued operations represents the operating results and gain on the sale of BAC, which owned and operated a mall in Charlotte, North Carolina and the operating results of TAGS, which owned and operated outlet stores. (5) Excludes 13 stores operated as TAGS Stores (as defined herein) closed in December 1997. 47 <PAGE> 56 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE BELK COMPANIES The following is a discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996, and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 which should be read in conjunction with the historical combined financial statements, including the notes thereto, included elsewhere in this Proxy Statement/Prospectus. GENERAL Acquisitions. The Belk Companies acquired a controlling interest in various corporations, which together operated 42 Leggett stores, in November 1996 (the "Leggett Acquisition") for $92.0 million. Under the purchase method of accounting, the assets, liabilities and results of operations associated with the Leggett Acquisition have been included in the Belk Companies' financial position and results of operation for the 1997 fiscal year since the date of acquisition. Due to the significant impact on the Belk Companies' operations associated with the Leggett Acquisition, the Belk Companies' historical results of operations and period-to-period comparisons for the fiscal years ended February 3, 1996 and February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 may not be meaningful or indicative of future results. Discontinued Operations. In November 1996, the Belk Companies sold their investment in a company that owned a retail mall to an unrelated third party. In October 1997, the Belk Companies announced the closing of the TAGS outlet stores (the "TAGS Stores"), which are operated by TAGS Stores, LLC ("TAGS"). Accordingly, the Belk Companies' continuing operations for the fiscal years ended February 1, 1997 and February 3, 1996 and the nine-month periods ended November 1, 1997 and November 2, 1996 have been reclassified to report separately the operating results of the discontinued operations. Certain Components of Net Income. Revenues include sales from retail operations and leased departments. Cost of goods sold include cost of merchandise, buying, and occupancy expense. Selling, general and administrative expense ("SG&A") includes payroll, advertising, credit and depreciation expense. 48 <PAGE> 57 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship to revenues of certain items in the Belk Companies' combined statements of income and other pertinent financial data. <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED ----------------------------------------- -------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995(1) 1996(1) 1997(1) 1996 1997 ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold............... 68.0 68.2 68.0 68.0 67.6 Selling, general and administrative expense......... 26.6 27.6 26.5 29.5 28.4 Income from operations........... 5.5 4.2 5.5 2.5 4.0 Interest expense................. 1.3 1.2 1.6 1.6 2.0 Income taxes..................... 1.7 1.3 2.2 1.2 0.8 Income from continuing operations..................... 2.8 2.5 3.6 2.0 1.4 Discontinued operations.......... 0.1 0.1 2.1 (0.4) (0.4) Net income....................... 2.9 2.6 5.7 1.7 1.0 Average gross square footage..... 14,312 14,269 14,754 N/A N/A Store revenues per average gross sq. ft......................... $ 118 $ 118 $ 120 N/A N/A Comparable stores revenues increase (decrease)............ 2.4% (2.3)% 2.3% 2.0% 1.7% Number of stores Opened......................... 7 6 5 4 4 Acquired....................... 0 0 42 42 0 Closed......................... (11) (11) (13) (9) (29)(2) Total -- end of period........... 221 216 250 253 225 </TABLE> - --------------- (1) The fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 consisted of 364, 368 and 365 days, respectively. (2) Includes 13 TAGS Stores that were closed in December 1997. COMPARISON OF NINE MONTHS ENDED NOVEMBER 1, 1997 AND NOVEMBER 2, 1996 Revenues. The Belk Companies' revenues for the nine months ended November 1, 1997 increased 17.9%, or $204.3 million, to $1.34 billion from $1.14 billion over the same period in 1996. This increase resulted primarily from the Leggett Acquisition, which contributed $195.5 million in revenues during the nine months ended November 1, 1997. Revenues for the nine months ended November 2, 1996 do not include revenues from the 42 acquired Leggett retail department stores. Comparable store revenues for the nine months ended November 1, 1997 also increased 1.7% compared to the same period in 1996. These increases were partially offset by a decrease in revenues of $4.9 million due to the net closing of 12 stores in the first nine months of fiscal year 1998 and five stores in the first nine months of fiscal year 1997. Cost of Goods Sold. As a percentage of revenues, cost of goods sold decreased to 67.6% for the nine months ended November 1, 1997 as compared to 68.0% in the comparable period in 1996 due to improved inventory management, which resulted in fewer markdowns. Cost of goods sold increased 17.2% or $133.4 million from $774.3 million for the nine months ended November 1, 1997 to $907.7 million in the comparable period in 1996, primarily due to the higher revenue volume associated with the Leggett Acquisition. The cost of goods sold of the acquired Leggett stores for the nine months ended November 1, 1997 was $133.4 million. Excluding the impact of the Leggett Acquisition, cost of goods sold was constant at $774.3 million for the nine months ended November 1, 1997 and November 2, 1996. Selling, General and Administrative Expenses. As a percentage of revenues, SG&A decreased to 28.4% for the nine months ended November 1, 1997 as compared to 29.5% in the comparable period in 1996. SG&A 49 <PAGE> 58 increased 13.5%, or $45.2 million, to $380.8 million for the nine months ended November 1, 1997 as compared to $335.6 million during the same period in 1996. The Leggett Acquisition resulted in additional SG&A of $56.0 million for the nine months ended November 1, 1997. Excluding the impact of the Leggett Acquisition, SG&A decreased 3.2% or $10.8 million. This decrease is attributable to decreases in non-selling payroll expense realized through efficiencies implemented in the retail department stores, employee insurance and advertising expense. Although bad debt expense increased $3.8 million due to increased Belk proprietary credit card sales volume and industry-wide increases in personal bankruptcies, the increase was partially offset by an increase in finance charge income of $1.5 million. Interest Expense. As a percentage of revenues, interest expense increased to 2.0% for the nine months ended November 1, 1997 as compared to 1.6% in the comparable period in 1996. Interest expense increased 51.0%, or $9.3 million, to $27.5 million for the nine months ended November 1, 1997 as compared to $18.2 million for the same period in 1996. The increase resulted primarily from higher average outstanding borrowings and higher effective interest rates needed to fund the Belk Companies' capital expenditures, the Leggett Acquisition and repurchases of common stock. Of the $9.3 million increase in interest expense, $4.9 million and $1.8 million, respectively, of the increase were attributable to interest expense on borrowings to finance the Leggett Acquisition and the repurchase of common stock. Additionally, $1.0 million in amortized pre-paid loan expense and $0.7 million in interest rate swap expense were incurred, with the remaining increase due to the increase in average borrowings. Gain (Loss) on Sale of Property and Equipment. Gain (loss) on sales of property and equipment was ($0.2) million for the nine months ended November 1, 1997 as compared to $19.8 million for the same period in 1996. The nine months ended November 2, 1996 included a $18.9 million gain on the sale of property and fixtures of three stores in Florida. Management does not anticipate that future sales of store assets, if any, will result in a gain of this magnitude. Discontinued Operations. The Belk Companies recognized an after-tax loss from operations of a retail mall joint venture of $2.8 million for the nine months ended November 2, 1996. This loss is included in discontinued operations as a result of selling the company that owned a retail mall. Also, as a result of discontinuing the operations of the TAGS Stores, the Belk Companies recognized a loss on disposal of $5.1 million for the nine months ended November 1, 1997, which was composed of a $1.3 million after-tax loss on operations and a $3.8 million after-tax loss on disposal of assets. In addition, a $1.2 million loss on operations of the TAGS Stores was recognized for the nine months ended November 2, 1996. Net Income. Net income decreased $5.8 million from 1.7% of revenues for the nine months ended November 2, 1996 to 1.0% of revenues for the nine months ended November 1, 1997. This decrease is primarily attributable to the increase in interest expense. The increase in interest expense was partially offset by an increase in income from operations which resulted from a decrease of 0.4% and 1.1% in cost of goods sold and SG&A, respectively, as a percentage of revenues. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 Revenues. The Belk Companies' revenues in fiscal year 1997 increased 5.2%, or $87.1 million, over fiscal year 1996 from $1.69 billion to $1.77 billion. The increase resulted primarily from the Leggett Acquisition. On a pro forma basis, assuming the Leggett store revenues were included for the entire fiscal year 1997, revenues would have increased $218.3 million or 12.3%. On a comparable store basis, revenues increased 2.3% compared to the first 52 weeks of fiscal year 1996. These increases were partially offset by a decrease in revenues of $30.4 million due to the net closing of 8 stores in fiscal year 1997 and 5 stores in fiscal year 1996. Cost of Goods Sold. As a percentage of revenues, cost of goods sold decreased to 68.0% in fiscal year 1997 as compared to 68.2% in fiscal year 1996 due to improved inventory management, which resulted in fewer markdowns. Cost of goods sold increased 4.9%, or $56.4 million, from $1.15 billion in fiscal year 1996 to $1.20 billion in fiscal year 1997, primarily due to higher revenues associated with the Leggett Acquisition. The Leggett stores' cost of goods sold for the three month period included in the fiscal year ended February 1, 1997 was $73.9 million. Excluding the impact of the Leggett Acquisition, cost of goods sold decreased 1.5%, or 50 <PAGE> 59 $17.5 million, from fiscal year 1996 to fiscal year 1997. This decrease was primarily a result of the closing of 13 stores offset by the opening of 5 new stores. Selling, General and Administrative Expenses. SG&A increased 1.0%, or $4.6 million, from fiscal year 1996 to fiscal year 1997. The Leggett Acquisition resulted in additional SG&A of $25.6 million for fiscal year 1997. Excluding the impact of the Leggett Acquisition, SG&A decreased 4.5%, or $21.0 million. This decrease was attributable to decreases in payroll and supply expense realized through efficiencies implemented in the retail department stores. Although bad debt expense increased $5.4 million due to increased Belk proprietary credit card sales volume and industry-wide increases in personal bankruptcies, the increased expense was substantially offset by an increase in finance charge income of $4.5 million. Interest Expense. As a percentage of revenues, interest expense increased to 1.6% for fiscal year 1997 as compared to 1.2% in fiscal year 1996. Interest expense increased 32.0%, or $6.7 million, to $27.6 million in fiscal year 1997 from $20.9 million in fiscal year 1996. The increase resulted primarily from higher average outstanding borrowings and higher effective interest rates needed to fund the Belk Companies' capital expenditures, the Leggett Acquisition and repurchase of common stock. The $6.7 million increase in interest expense was attributable to interest expense on borrowings to finance the Leggett Acquisition and the repurchase of Belk Companies Common Stock. Average outstanding borrowings increased by $65 million and effective interest rates increased 50 basis points. Gain on Sale of Property and Equipment. Gain on sale of property and equipment was $21.3 million in fiscal year 1997, as compared to $5.2 million in fiscal year 1996, resulting principally from gains on the sale of property and fixtures of three stores in Florida. Discontinued Operations. The Belk Companies recognized a gain on the sale of a company that owned a retail mall of $37.9 million in fiscal year 1997, which was composed of a $3.6 million after-tax loss on operations and a $41.5 million after-tax gain on disposal of assets. In fiscal year 1996, the after-tax income from the retail mall operation was $1.3 million. The Belk Companies recognized an after-tax loss on the discontinued operations of the TAGS Stores of $1.0 million for the fiscal year ended February 1, 1997. Net Income. Net income increased $57.6 million to 5.7% of revenues in fiscal year 1997 compared to 2.6% of revenues in fiscal year 1996. This increase was primarily attributable to the gain on the sale of a company that owned a retail mall of $41.5 million and the gain on sale of property and fixtures of three stores in Florida stores of $21.3 million. Net income contributed by the Leggett Acquisition was $3.1 million in fiscal year 1997. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 1, 1996 AND JANUARY 31, 1995 Revenues. The Belk Companies' revenues remained substantially flat at $1.69 billion in fiscal year 1996 as compared to fiscal year 1995. Adjusting for the impact of the four additional days in fiscal year 1996, comparable store revenues decreased 2.3% and were experienced by most of the geographical regions equally in both the Spring and Fall selling seasons. This decrease was partially offset by an increase in revenues from 24 new, expanded and remodeled stores, net of decreases resulting from 22 closed stores. Cost of Goods Sold. Cost of goods sold was constant at $1.2 billion in fiscal year 1996 compared to fiscal year 1995. As a percentage of revenues, cost of goods sold increased from 68.0% in fiscal year 1995 to 68.2% in fiscal year 1996. This increase is attributable to an increase in merchandise costs as a result of increased markdowns, but was partially offset by a decrease in distribution costs. Selling, General and Administrative Expenses. As a percentage of revenues, SG&A increased from 26.6% in fiscal year 1995 to 27.6% in fiscal year 1996. SG&A increased 3.3%, or $15.0 million, from $450.4 million in fiscal year 1995 to $465.4 million in fiscal year 1996. This increase was primarily attributable to increased advertising, computer software and credit expense which increased in part due to an increase in Belk proprietary credit card promotions and third party bank card fees. These increases were partially offset by a decrease in non-selling payroll. 51 <PAGE> 60 Gain on Sale of Property and Equipment. Gain on sale of property and equipment was $5.2 million in fiscal year 1996, as compared to $0.6 million in fiscal year 1995. In fiscal year 1996, a gain on the sale of property and fixtures of two South Carolina stores was recognized in the amount of $5.7 million. Net Income. Net income decreased $4.8 million to 2.6% of revenues in fiscal year 1996 compared to 2.9% of revenues in fiscal year 1995. This decrease was primarily attributable to a decrease in income from operations which resulted from an increase of 0.2% and 1.0% in cost of goods sold and SG&A, respectively, as a percentage of revenues. SEASONALITY AND QUARTERLY FLUCTUATIONS The Belk Companies have historically experienced and expect to continue to experience seasonal fluctuations in their revenues, operating income and net income. The highest revenue period for the Belk Companies is the fourth quarter, which includes the Christmas selling season. A disproportionate amount of the Belk Companies' revenues and a substantial amount of the Belk Companies' operating and net income are realized during the fourth quarter. If for any reason the Belk Companies' revenues were below seasonal norms during the fourth quarter, the Belk Companies' annual results of operations could be adversely affected. The Belk Companies' inventory levels generally reach their highest in anticipation of increased revenues during these months. The following table illustrates the seasonality of revenues by quarter as a percentage of the full year for the fiscal years indicated. <TABLE> <CAPTION> 1995 1996 1997 ---- ---- ---- <S> <C> <C> <C> First quarter.......................................... 21.9% 21.5% 21.6% Second quarter......................................... 21.8% 22.2% 22.1% Third quarter.......................................... 23.4% 23.4% 23.5% Fourth quarter......................................... 32.9% 32.9% 32.8% </TABLE> The Belk Companies' quarterly results of operations could also fluctuate significantly as a result of a variety of factors, including the timing of new store openings. LIQUIDITY AND CAPITAL RESOURCES The Belk Companies' primary sources of liquidity are cash on hand, cash flow from operations, and borrowings under credit facilities. During the nine months ended November 1, 1997, net cash provided by operations was $1.2 million, compared to net cash used by operations of $34.7 million during the same period in 1996. Such increase was attributable to an increase in net income (excluding the gain on sale of property and equipment for the nine months ended November 2, 1996) and an increase in accounts payable, offset by an additional investment in inventory. In fiscal year 1997, the Belk Companies had sufficient cash flows from operations and their credit facilities to fund their working capital needs, capital expenditures, the Leggett Acquisition and repurchase of common stock. Net cash provided by operations was $117.9 million, $60.4 million, and $67.3 million for the 1995, 1996, and 1997 fiscal years, respectively. In fiscal year 1995, cash flows from operations of $117.9 million included $48.6 million in net income accompanied by an increase of $12.5 million in accounts payable and a decrease of $11.0 million in accounts receivable from customers. The decrease in cash provided from operations in fiscal year 1996 as compared to fiscal year 1995 was attributable to changes in working capital needs, primarily a decrease in accounts payable of $8.2 million combined with an additional investment in inventory of $16.3 million. The increase in cash provided from operations in fiscal year 1997 was attributable to increased net income, which resulted from the sale of property and fixtures and a company that owned a retail mall, offset partially by the increase in accounts receivable from customers. Accounts receivable from customers increased 27.6% from February 3, 1996 to February 1, 1997 resulting in a decrease in cash provided 52 <PAGE> 61 from operations of $32.7 million. The Belk Companies have promoted the Belk proprietary credit card through targeted marketing campaigns and active solicitation efforts on the store sales floor in order to attract new customers and generate additional sales from existing customers to increase the active proprietary credit card account base. While these efforts have been successful in increasing credit card sales volume significantly, cash provided from operations has been negatively impacted. Investing activities included capital expenditures, primarily for new, relocated and remodeled stores; purchases and sales of equity investments; purchases and sales of property and equipment related to store openings and closings; and the acquisition of a company that indirectly owned a 50% interest in a retail mall and the Leggett Acquisition. The Belk Companies operated 221, 216 and 250 department stores, respectively, for the 1995, 1996 and 1997 fiscal years. Stores have been strategically opened and closed to allow the Belk Companies to focus on their most productive and profitable markets. New Belk will continue to open new stores in new and existing markets, and to expand and renovate existing store facilities in order to increase revenues and market share. Capital expenditures, primarily for new and remodeled stores, amounted to $54.9 million in the nine months ended November 1, 1997 and $53.7 million in the comparable period in 1996. Capital expenditures amounted to $34.3 million, $50.3 million, and $62.4 million for the 1995, 1996 and 1997 fiscal years, respectively. While it is difficult to predict future capital expenditure needs for the Belk Companies, capital expenditures over the next three fiscal years are expected to average between $60 and $90 million per year, excluding any acquisitions. Financing activities included repurchases of common stock and payments or additional borrowings on credit facilities. During the fiscal year ended February 1, 1997, the Belk Companies repurchased common stock from several major shareholders for an aggregate of $169.3 million. The repurchases contributed an increase of $108.5 million in credit facilities from fiscal year 1996 to fiscal year 1997. In addition, stockholders' equity decreased from $748.7 million at February 3, 1996, to $672.0 million at February 1, 1997. This decrease of $76.7 million was due primarily to a decrease of $169.3 million resulting from the stock repurchases, offset partially by net income of $101.4 million for the fiscal year ended February 1, 1997. The Belk Companies total indebtedness at November 1, 1997 was $429.9 million, compared to $671.0 million at November 2, 1996. The $429.9 million indebtedness at November 1, 1997 is comprised of $221.3 million of current maturities of long-term debt and short-term borrowings and $208.6 million of long-term debt. Of the $429.9 million of total indebtedness, $378.3 million was variable rate debt based on LIBOR and the secondary 90-day CD rate, and $51.6 million was fixed-rate. The Belk Companies have entered into interest rate swap agreements with various financial institutions to manage the exposure to changes in interest rates on its LIBOR based indebtedness. The amount of indebtedness covered by the interest rate swaps was $125.0 million at November 1, 1997. Subsequent to November 1, 1997, the Belk Companies entered into an additional $50.0 million in interest rate swaps. The amount of indebtedness covered by the interest rate swaps is $175.0 million for 1998, $150.0 million for 1999, $75.0 million for 2000 and 2001, and $50.0 million through 2007. During November, 1997, the Belk Companies obtained a $164.0 million credit line from a bank consortium to fund seasonal borrowing requirements. This facility replaced individual seasonal lines with single banks for individual Belk Companies. For the fiscal year ending January 31, 1999, New Belk's cash requirements will be for working capital, capital expenditures, technology, reorganization expenses and debt service. Management plans to open four new stores and remodel, expand or relocate nine existing stores in fiscal year 1998, which would add approximately 341,000 additional square feet of selling space, a 2% increase over fiscal year 1997. Management presently anticipates funding these expenditures from operations and credit facilities. In addition, New Belk intends to enter into an accounts receivable securitization program whereby it will sell an undivided interest in the Belk proprietary credit card receivables through a special purpose limited liability company. The program will be funded by commercial paper and will initially be limited to $40 million 53 <PAGE> 62 with the potential to reach $250 million by the end of the fiscal year ended January 30, 1999. Net proceeds received under the program will be used to reduce indebtedness. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" which is effective for the Belk Companies on January 31, 1998. SFAS No. 128 simplifies the standards for computing earnings per share previously found in Accounting Principles Board Opinion No. 15 and establishes new standards for computing and presenting earnings per share. Application of SFAS No. 128 is not expected to have a significant effect on New Belk. In February 1997, the Financial Accounting Standards Board issued SFAS No. 129, "Disclosure of Information about Capital Structure" which establishes standards for disclosing information about an entity's capital structure. Application of SFAS No. 129 is not expected to have a significant effect on New Belk. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" which establishes standards for reporting comprehensive income and its components in the financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. For New Belk, this disclosure will consist primarily of changes in the unrealized gains and losses from FAS 115 and will be effective for the first quarter of the fiscal year ending January 30, 1999. IMPACT OF INFLATION While it is difficult to determine the precise effects of inflation, management of BSS does not believe inflation had a material impact on the combined financial statements for the periods presented. BUSINESS OF NEW BELK BUSINESS OVERVIEW The Belk Companies operate the largest privately-owned department store business in the United States, with total revenues of approximately $2.1 billion on a pro forma combined basis for the fiscal year ended February 1, 1997. The Belk Companies and the Surviving Belk Subsidiaries operate 225 retail department stores in 13 states in the southeastern United States. Belk stores sell top national brands of fashion apparel, shoes and accessories for men, women and children, as well as cosmetics, home furnishings, housewares, gifts and other types of merchandise. Belk stores also offer customers exclusive private label brands, such as Andhurst, Heiress, Home Accents, J. Khakis, Kim Rogers, Maryann's Boutique, Meeting Street, Saddlebred, Sweetbriar and 24/Seven. Larger Belk stores include hair salons, restaurants, optical centers and other amenities. Belk stores attempt to provide customers with the convenience of one-stop shopping, with a large merchandise mix and extensive offerings of brands, styles, assortments and sizes. Although the Belk Companies operate 48 Belk stores that exceed 100,000 square feet in size, most Belk stores range in size from 50,000 to 80,000 square feet. In addition to department stores, the Belk Companies operate two stores that sell limited selections of cosmetics, hosiery and accessories for women under the "Belk Express" store name. The Companies also operated several discount outlet centers under the TAGS name. These stores were closed during the fiscal year ended January 31, 1998. Most of the Belk stores are anchor tenants in major regional malls and shopping centers, primarily in medium and smaller markets. The Belk stores occupy in the aggregate approximately 17 million square feet of space. Management of the Belk stores is organized into separate and independent regional operating groups, with each group headed by an executive vice president. Each group supervises a number of stores and maintains an administrative office in the market served by the group. Group offices provide overall management and support for the Belk stores in their regions. Support services include merchandising, advertising and sales promotion, human resources, accounting, training, operations and systems support. 54 <PAGE> 63 BSS coordinates the Belk stores operations on a company-wide basis by providing services to the Belk Companies and Belk stores such as merchandising, marketing, advertising and sales promotion, human resources, public relations, accounting, store planning, credit operations, legal assistance, distribution and purchasing. BUSINESS STRATEGY New Belk's business strategy will be to increase shareholder value by focusing on increasing sales volume, market share, productivity and operating earnings. Management of New Belk believes that the consolidation of the Belk Companies will also allow New Belk to consolidate and reduce certain operating and administrative expenses. Key elements of New Belk's business strategy include (i) expanding and remodeling existing stores to provide more attractive store environments, (ii) lowering New Belk's cost structure, (iii) reinforcing the Belk stores' position as a fashion leader within their markets, (iv) generating additional sales from existing customers and (v) focusing on customer service to encourage repeat customers. Store Expansion and Renovation. New Belk will continue the ongoing program of the Belk Companies to expand and renovate existing store facilities to ensure that all stores provide customers with an exciting shopping environment that is modern, attractive, comfortable and convenient. The Belk Companies have invested approximately $215 million over the past five years in building new stores and expanding and renovating existing stores. Lower Cost Structure. The Belk Companies have implemented a plan in recent years to significantly lower their cost structure and improve operational efficiency. This plan has resulted in improved store profitability and has enabled Belk stores to provide more competitive pricing and value to customers. New Belk will continue to implement this plan in the Belk stores. New Belk will also continue to improve profitability by implementing new management information systems and sales support re-engineering programs. Management also believes that the Reorganization will lead to lower administrative costs and other expenses associated with its current organizational structure. Fashion Leadership. New Belk intends to capitalize on and expand the dominant position of most of its stores as the leading distributor and provider in its markets of top national "mega-brand" fashion merchandise. New Belk will also seek to maintain high inventory levels of basic and advertised merchandise and to aggressively develop and grow New Belk's private brand business. Sales Growth From Existing Customers. Management believes that New Belk can increase the sales and earnings of the Belk Companies by generating additional sales from existing customers. New Belk intends to target top customers who generate significant sales through a new program which provides special benefits to customers who make extensive use of Belk credit programs. New Belk will also seek to grow sales from existing customers by focusing the efforts of Belk associates on increasing the number of units per transaction, approaching customers promptly and recognizing them by name and aggressively promoting the use of Belk credit programs. Customer Focus and Customer Service. Management intends to respond aggressively to changing customer shopping and service needs through effective communication with customers and consumer research. New Belk will also seek to maximize customer convenience through effective inventory management that ensures consistently high inventory levels of basic and advertised merchandise, effective store layout, merchandise signage and visual display, and quick and efficient transactions at the point of sale. New Belk will also strive to continue to attract and retain well-qualified associates who provide a high level of friendly, personal service to enhance the customer's shopping experience. GROWTH STRATEGY New Belk intends to open new stores in new and existing markets in order to increase sales, market share and customer loyalty. As the consolidation of the department store industry continues, New Belk will seek out and consider retail acquisitions that offer opportunities and growth into contiguous markets. Management of New Belk believes the greatest opportunities for growth are in existing Belk markets where the Belk name and 55 <PAGE> 64 reputation are well known. Although New Belk will take advantage of opportunities to expand into large markets, New Belk will focus its expansion in medium sized markets, where there is little department store competition, with store units in the 50,000 to 80,000-square-foot size range. In determining where to open new stores, New Belk management will evaluate demographic information such as income and education levels, age and occupation, availability of prime real estate locations, existing and potential competitors and the number of Belk stores in the same or contiguous market areas. Management will also analyze store and market sales and income data and seek to identify economies of scale available in advertising, distribution and other expenses as part of its process for determining new store sites and markets for expansion. Using this strategy, the Belk Companies opened five new stores in 1996 with a combined size of more than 214,000 square feet of space. In 1997, the Belk Companies opened five new Belk stores with a combined size of more than 400,000 square feet of space. New store locations in 1997 included: <TABLE> <CAPTION> LOCATION SIZE (IN SQ. FT.) DATE OF OPENING - -------- ----------------- ---------------- <S> <C> <C> Greensboro, N.C., Friendly Shopping Center.................. 140,000 April 9, 1997 Carrollton, Ga., Carrollton Center.......................... 70,000 July 30, 1997 Cartersville, Ga., Main Street Shopping Center.............. 60,000 July 30, 1997 Prattville, Ala., Premier Place............................. 51,000 August 6, 1997 Easley, S.C., Town and Country Plaza........................ 90,000 October 15, 1997 </TABLE> Four new Belk stores are scheduled for completion in 1998. They include: <TABLE> <CAPTION> APPROXIMATE DATE OF SCHEDULED EXPECTED SIZE LOCATION COMPLETION (IN SQ. FT.) NEW OR EXISTING MARKET - -------- ------------- ----------------- ---------------------- <S> <C> <C> <C> Canton, Ga............................ February 1998 60,000 New Smithfield, NC........................ February 1998 59,000 Existing Cookeville, TN........................ July 1998 60,000 New Simpsonville, SC...................... October 1998 51,000 New </TABLE> MERCHANDISING Belk stores feature quality name brand and private label merchandise in moderate to upper-middle price ranges, providing fashion, selection and value to customers. The merchandise mix is targeted to middle and upper-income customers shopping for their families and homes, and includes a wide selection of fashion apparel, accessories and shoes for men, women and children, cosmetics, home furnishings, housewares, gift and guild, jewelry, candy and other types of department store merchandise. Belk stores offer complete assortments of desirable national brands advertised within the store by attractive store displays. Most Belk stores are the leading sellers in their markets of such top national "mega-brands" as Estee Lauder, Clinique, Lancome, Jones New York, Liz Claiborne, Tommy Hilfiger, Polo Ralph Lauren, Calvin Klein, Pendleton, Lee, Levi, Nike, Reebok, Bali and others. The Belk Companies have enjoyed excellent long-time relationships with many top apparel and cosmetics suppliers and often enter into arrangements to distribute apparel, accessories and cosmetics on an exclusive basis. This enhances the Belk stores' image as a fashion leader and enables Belk stores to offer customers exclusive and original styles that are not generally available in other stores in their markets. Belk stores also offer a number of exclusive private label brands, which are designated to differentiate Belk stores from their competitors by providing customers with merchandise which is comparable in quality and style with national "mega-brands" at substantial savings. Management of New Belk will seek to increase private brand sales because private brand sales typically have higher margins. New Belk intends to keep fresh seasonal inventory in stock at stores throughout the year and to maintain inventory levels that provide optimum in-stock positions. Belk stores place special emphasis on maintaining 56 <PAGE> 65 high levels of inventory of advertised and basic items to ensure that consumers may buy the merchandise they want. To maintain adequate inventories of basic merchandise, the Belk Companies have developed an automated inventory system that alerts suppliers when inventories need to be replenished. This system helps ensure that Belk stores can meet customers' basic needs. The Belk Companies use state-of-the-art merchandise information systems to assist management in quickly identifying sales trends, managing markdowns and monitoring merchandise mix and inventory levels. The stores also use a uniform product code bar coded scanning system to speed sales transactions and ensure accuracy. MARKETING General. New Belk's primary marketing strategy will involve direct communications with customers through personal contact and the use of multi-faceted advertising, marketing and sales promotion programs. The strategy is expected to encompass extensive mass media print and broadcast advertising, direct mailings to charge customers, comprehensive store visual merchandising and signing, in-store special events (e.g., fashion shows, trunk shows, celebrity and designer appearances) and magazine and billboard advertising. Major sales promotions and sales events will be planned and implemented throughout the year. New Belk is expected to produce advertising circulars during the year which will be distributed to millions of customers via newspaper inserts or direct mailings, and the cost of many of these mailings is expected to be funded in part or in whole by suppliers. New Belk intends to use creative advertising that effectively communicates New Belk's merchandise offerings and fashion image to store customers in a variety of media. In addition, the Belk Companies are testing a "one-to-one" relationship marketing program which will enable New Belk to communicate and advertise with customers more effectively based on the customer's individual merchandise needs and shopping preferences. The program will also enable New Belk to target more effectively direct mail sales promotions and communications to charge customers based on market data, shopping patterns and purchasing behavior. The program is expected to substantially reduce the cost and increase the return on direct mail advertising to charge customers. The program is expected to be implemented in all Belk stores beginning in the Spring of 1998. New Belk will carefully monitor marketing and sales promotion efforts and media mix to ensure that customers are being reached effectively and efficiently and that stores generate the maximum return possible on their advertising expenditures. Marketing and sales promotions initiatives by the Belk Companies for fiscal year 1997 included the following: - implementation of an electronic ad service system that allows stores throughout a market to obtain the latest merchandise advertisements and photos electronically; - increased use of direct mail and other targeted marketing vehicles to boost sales of key national "mega-brands;" and - implementation of improved visual display standards in all stores with emphasis on the creation of high impact merchandising for key suppliers and merchandise lines. Proprietary Credit Card. Management of New Belk believes it can increase sales by generating additional sales from existing Belk charge customers. There were a total of 1.9 million active Belk charge customers in fiscal year 1996, which included 300,000 customers who live outside of existing market areas. Belk credit sales for fiscal year 1998 through October were 38.3% of total sales, compared to 37.0% for the same period last year. New Belk intends to increase the frequency of use of the Belk charge cards by existing Belk charge customers as well as increase the number of new Belk cardholders through targeted marketing campaigns and active solicitation efforts within Belk stores. A new affinity program for top Belk charge customers called "BelkSelects" was introduced in fiscal year 1997 to attract profitable new customers, increase sales from existing customers and increase the active Belk credit card account base. The program offers a number of special benefits and services, such as free deluxe gift wrapping and free basic alterations, to charge customers 57 <PAGE> 66 who have made Belk charge purchases totaling $800 or more in the past 12 months. Approximately 293,000 Belk charge customers qualified for the program initially and received new BelkSelects cards, and an additional 50,000 Belk charge customers have qualified for the program during fiscal year 1998 through September, 1997. BUYING The Belk Companies' highly qualified and experienced buyers and merchants carefully monitor the merchandise mix of the Belk stores to maximize sales and profitability. The planning process involves a continuing review of merchandise needs by department and demand center, as well as on an individual store basis. Historically, Belk stores have remained in touch with their customers and markets through their use of a decentralized buying process. The Belk Companies have evolved from individual store buying to a more efficient buying process conducted by group buyers located in regional offices. These buyers work together with corporate buyers at BSS and local store personnel to ensure that each Belk store gets the merchandise needed to meet the needs of local customers. The Belk Companies are currently conducting a pilot test of a new merchandise procurement process called Transforming the Merchandise Process ("TMP"). This process is designed to capitalize on the Belk Companies' ability to tailor merchandise assortments to individual store locations and still take advantage of the collective buying clout of over two hundred stores. TMP uses a team approach which brings group buyers and corporate buyers at BSS in each merchandise category together to develop strategies for creating merchandising assortments that generate profitable sales volume. STORE LOCATIONS AND OPERATIONS As of November 1, 1997, the Belk Companies and the Surviving Belk Subsidiaries operated a total of 225 retail stores in the following states: <TABLE> <S> <C> <C> Alabama -- 3 Maryland -- 2 Tennessee -- 3 Arkansas -- 2 Mississippi -- 1 Texas -- 2 Florida -- 17 North Carolina -- 82 Virginia -- 27 Georgia -- 42 South Carolina -- 38 West Virginia -- 2 Kentucky -- 4 </TABLE> Belk stores are located in regional malls (122), strip shopping centers (92) and as freestanding units (11). Approximately 89% of the gross square feet of the typical Belk store is devoted to selling space to ensure maximum operating efficiencies. A majority of the stores are either new or have undergone renovations within the past ten years. The new and renovated stores feature the latest in retail design, including attractive exteriors and interiors. The interiors are designed to create an exciting, comfortable and convenient shopping environment for customers. They include the latest lighting and merchandise fixturing, as well as quality decorative floor and wall coverings and other special decor. The store layout is designed for ease of shopping and store signing is used to help customers identify and locate merchandise. As of November 1, 1997, the Belk Companies owned 67 stores, leased 149 stores under operating leases, and owned 9 stores under ground leases. The typical operating lease has an initial term of between 15 and 20 years, with four renewal periods of five years each, exercisable at the particular Belk Company's option. The typical ground lease has an initial term of 20 years, with four renewal periods of five years each, exercisable at the particular Belk Company's option. 58 <PAGE> 67 The Belk Companies also own or lease the following distribution centers, regional group offices and headquarters facilities: <TABLE> <CAPTION> BELK PROPERTY LOCATION OWN/LEASE - ------------- --------------- --------- <S> <C> <C> Hudson Group Office........................................ Raleigh, NC Lease Howard Group Office........................................ Fayetteville, Lease NC Kerr Group Office.......................................... Norcross, GA Lease Kuhne/Greiner Group Office................................. Greenville, SC Own Matthews Group Office...................................... Gastonia, NC Own Nipper Group Office........................................ Summerville, SC Own Pennell Group Office....................................... Charlotte, NC Own Stovall Group Office....................................... Richmond, VA Lease Belk Stores Services -- LakePointe......................... Charlotte, NC Own Howard Group Distribution Center........................... Fayetteville, Lease NC Hudson Group Distribution Center........................... Morrisville, NC Own Huffstetler Group Distribution Center...................... Greensboro, NC Lease Kuhne/Greiner Group Distribution Center.................... Mauldin, SC Lease Nipper Group Distribution Center........................... Summerville, SC Lease </TABLE> SYSTEMS AND TECHNOLOGY Management of New Belk believes that investments in technology and information systems are necessary in order to drive sales growth, improve operating efficiency and support its overall business strategy. The Belk Companies now use a number of systems designed to capture information, including a merchandise tracking system, a point of sale system and a data warehouse system that will help buyers improve their merchandise decisions by giving them timely merchandise and sales information. New systems that will be implemented in the future include (i) a merchandise planning system that will help improve the quality of merchandise plans, assortments and inventory timing and flow and (ii) a price management system that will give buyers and store associates more control over the pricing of merchandise. Management has also implemented a system wide review in order to modify the Belk Companies management information systems and other information systems to recognize all calendar data after December 31, 1999. NON-RETAIL BUSINESSES General. Several of the Belk Companies and the Surviving Belk Subsidiaries (including those that New Belk does not intend to merge into itself after consummation of the Reorganization) do not operate retail department stores, but instead operate business that indirectly or directly support the operations of the retail department stores. The non-retail businesses include (i) real estate operations, (ii) financing operations, (iii) equipment maintenance operations, (iv) advertising, (v) equipment leasing, (vi) importing and (vii) insurance services. None of the non-retail businesses are material to the Belk Companies' operations as a whole. The financing operations, operated by Belk Finance Company ("Belk Finance"), and the equipment maintenance services, operated by UES, however, are important to the Belk Companies' operations because, absent those services, the Belk Companies would be required to purchase those services from third parties. Belk Finance. Belk Finance provides financing services to the Belk Companies and Surviving Belk Subsidiaries by handling cash investments from Belk Companies and providing loans to Belk Companies. Belk Finance, as one of the Belk Companies, will merge with and into New Belk. See "Certain Relationships and Transactions -- Certain Transactions with Management and Business Relationships Between the Belk Companies." UES. UES, a wholly owned subsidiary of Belk of Lawrenceville, Va., Inc., provides equipment maintenance services, primarily on cash registers, but also on other equipment. UES provides such services to the Belk Companies pursuant to contracts with BSS. See "Certain Relationships and Transactions -- Certain Transactions with Management and Business Relationships Between the Belk Companies." 59 <PAGE> 68 Discount Operations. During the fiscal year ended February 1, 1997 and the fiscal year ended January 31, 1998, The Belk Companies converted certain Belk clearance center stores to discount outlet stores operated under the TAGS name. The TAGS Stores sold irregular, close-out, excess and out-of-season merchandise purchased from third-party vendors. The TAGS Stores were designed to have significantly lower gross margins and lower payroll costs than Belk retail department stores, with check-out counters in the front of the store and fewer sales associates. In October 1997, the Belk Companies announced the closing of the TAGS Stores. The TAGS Stores were closed in December 1997 and the remaining assets are currently undergoing liquidation. One of the regional operating groups, located in Gainesville, Florida, also operates three small clearance centers that are used to liquidate merchandise transferred from retail department stores in the regional operating group after the merchandise is no longer saleable in the retail department stores. New Belk will operate these stores after consummation of the Reorganization. INDUSTRY AND COMPETITION The Belk Companies operate retail department stores in the highly competitive and dynamic retail apparel industry. Management of New Belk believes that the principal competitive factors for retail department store operations include merchandise selection, quality, value, customer service and convenience. New Belk believes its stores are strong competitors in all of these areas. New Belk's primary competitors are traditional department stores, mass merchandisers, national apparel chains, designer boutiques, individual specialty apparel stores and direct marketing firms including Federated Department Stores, Inc., The May Department Stores Company, Dillard's, Inc., Proffitt's, Inc., J.C. Penney Company, Inc., Wal Mart Stores, Inc. and Sears, Roebuck & Co. TRADEMARKS AND SERVICE MARKS BSS, in which New Belk will own 99.8% of the common stock following consummation of the Reorganization, owns all of the principal trademarks and service marks now used by the Belk Companies in their businesses, including "Belk" and "All for You." These marks are registered with the United States Patent and Trademark Office. The term of each of these registrations is generally ten years, and they are generally renewable indefinitely for additional ten year periods so long as they are in use at the time of renewal. Most of the trademarks, trade names and service marks employed by the Belk Companies in their businesses are used in the Belk Companies' private label program. New Belk intends to vigorously protect its trademarks and service marks and initiate appropriate legal action whenever necessary. EMPLOYEES As of November 1, 1997, the Belk Companies had approximately 25,000 full-time and part-time employees. Because of the seasonal nature of the retail business, the number of employees is highest during the holiday shopping period in November and December. The Belk Companies as a whole consider their relations with employees to be good. None of the employees of the Belk Companies is represented by unions or subject to collective bargaining agreements. LEGAL PROCEEDINGS The Belk Companies are engaged in various legal actions which are incidental to their business. Management of New Belk believes that none of the various actions and proceedings involving the Belk Companies will have a material adverse effect on New Belk's financial condition or results of operations. 60 <PAGE> 69 MANAGEMENT DIRECTORS Upon consummation of the Reorganization, the New Belk Board will consist of ten members. Pursuant to the New Belk Certificate, the New Belk Board will be divided into three classes as nearly equal in number as possible, with staggered three year terms. Prior to the annual meeting of New Belk Stockholders in 1998, the New Belk Board will nominate persons for election as Class I, Class II and Class III directors, with Class I directors to serve a one-year term that will expire at the annual meeting of New Belk Stockholders in 1999, Class II directors to serve a two-year term that will expire at the annual meeting of New Belk Stockholders in 2000 and Class III directors to serve a three-year term that will expire at the annual meeting of New Belk Stockholders in 2001. At the expiration of the term of office of each class of directors elected at the annual meeting of New Belk Stockholders in 1998, the nominees for election as directors within each class will be elected for a three-year term. Set forth below is information with respect to the directors of New Belk. The following table sets forth information as to the persons who are expected to serve as directors of New Belk following the Reorganization until the annual meeting of New Belk Stockholders in 1998. <TABLE> <CAPTION> NAME AGE POSITION - ---- --- -------- <S> <C> <C> John M. Belk................ 77 Chairman of the Board and Chief Executive Officer Sarah Belk Gambrell......... 79 Director Thomas M. Belk, Jr.......... 42 Director, President H. W. McKay Belk............ 40 Director, President John R. Belk................ 38 Director, President David B. Cannon............. 60 Director J. Kirk Glenn, Jr........... 54 Director Karl G. Hudson, Jr.......... 78 Director John A. Kuhne............... 54 Director B. Frank Matthews, II....... 70 Director, Executive Vice President </TABLE> John M Belk. Mr. Belk is Chairman of the Board of BSS and most of the Belk Companies. Mr. Belk has been Chief Executive Officer of BSS and most of the Belk Companies for more than forty years. Mr. Belk was Mayor of the City of Charlotte from June 1969 until December 1977. Mr. Belk is a Director emeritus of Wachovia Corporation and Quantum Chemical Corporation and serves on the Boards of Directors of Lowe's Companies, Coca-Cola Bottling Co. Consolidated, Inc. and PMC, Inc. and has served on the Board of Directors of Chaparral Steel Company. He is a past Chairman of the National Retail Federation. He is on the Board of Trustees of Union Theological Seminary, the Board of Visitors of the University of North Carolina at Charlotte, the North Carolina Council on Management and Development and the Business Partnership Foundation of the University of South Carolina, Columbia. Mr. Belk is the brother of Sarah Belk Gambrell and the uncle of Thomas M. Belk, Jr., H.W. McKay Belk and John R. Belk. Sarah Belk Gambrell. Mrs. Gambrell serves as a director of many the Belk Companies and has served as Vice Chairman and President of various Belk Companies for many years. She has served as Trustee of the Presbyterian School of Christian Education in Richmond, Virginia, Princeton Theological Seminary, Warren Wilson College and Johnson C. Smith University. She is a member of the Board of Visitors of the UNC Cancer Center at Chapel Hill, North Carolina, and she serves on the Boards of the North Carolina Community Foundation, Inc, the Foundation for Good Business, the Florence Crittenton Home, the Queens College Friends of Music, the Parkinson's Disease Foundation in New York City, the Parkinson's Association of Mecklenburg County, North Carolina and the National Board of the YWCA. Mrs. Gambrell is the sister of John M. Belk and the aunt of Thomas M. Belk, Jr., H.W. McKay Belk and John R. Belk. 61 <PAGE> 70 Thomas M. Belk, Jr. Mr. Belk has been Vice Chairman of BSS and President of most of the Belk Companies since March 1997. Mr. Belk also serves on the Boards of Directors of most of the Belk Companies. Mr. Belk has been employed in the Belk retail organization since 1981. From February 1991 to February 1992, Mr. Belk was employed by BSS as Vice President, Real Estate and Store Planning. From February 1992 to March 1997, Mr. Belk was employed by BSS as Senior Vice President -- Human Resources and Operations, Long Range Planning. Mr. Belk serves on the Boards of Advisors of the Wachovia Bank, N.A., Kenan Flagler Business School at UNC-Chapel Hill and the University of North Carolina at Charlotte Foundation. He serves on the Boards of Directors of the Mecklenburg County Council of Boy Scouts of America, the Charlotte Metropolitan YMCA, Charlotte Country Day School, American Humanics, Inc., Research Triangle Foundation of North Carolina, Presbyterian Hospital Foundation and Foundation for the Carolinas. Mr. Belk is the brother of H.W. McKay Belk and John R. Belk and the nephew of John M. Belk and Sarah Belk Gambrell. H.W. McKay Belk. Mr. Belk has been Vice Chairman of most of the Belk Companies and President and Chief Merchandising Officer of BSS since March 1997. Mr. Belk has been employed in the Belk retail organization since June 1979. From January 1992 to September 1995, he was employed by BSS as Senior Vice President, Merchandising. From September 1995 to March 1997, Mr. Belk was employed by BSS as President, Merchandising and Sales Promotion. Mr. Belk is Vice Chairman of many of the Belk Companies. Mr. Belk serves on the Boards of Directors of Charlotte Chamber of Commerce, Coca-Cola Consolidated Bottling Co. and the Charlotte Latin School. Mr. Belk also serves as a member of the Boards of Central Charlotte YMCA, Crossnore Schools and the Leighton Ford Ministries. Mr. Belk is the brother of Thomas M. Belk, Jr. and John R. Belk and the nephew of John M. Belk and Sarah Belk Gambrell. John R. Belk. Mr. Belk has been Vice Chairman of most of the Belk Companies and President and Chief Operating Officer of BSS since March 1997. Mr. Belk has been employed in the Belk retail organization since 1986. From February 1992 to March 1993, he was Senior Vice President, Systems and Control. From March 1993 to March 1997, Mr. Belk was employed by BSS as Senior Vice President, Operations. Mr. Belk serves on the Boards of Directors of Alltel Corporation, First Union National Bank, N.A., Ruddick Corporation and Presbyterian Health Services Corp. He also serves on the Boards of Central YMCA, St. Andrews Presbyterian College and United Way of Central Carolinas. Mr. Belk is the brother of Thomas M. Belk, Jr. and H.W. McKay Belk and the nephew of John M. Belk and Sarah Belk Gambrell. David B. Cannon. Mr. Cannon has been employed in the Belk store organization since 1960 and has served as a director of a number of the Belk Companies. Mr. Cannon has served as Vice President and Manager of Belk Department Store of Gaffney, South Carolina, Incorporated since 1968. He is a past President of the Cherokee County Chamber of Commerce. J. Kirk Glenn, Jr. Mr. Glenn has served on the Boards of Directors of a number of the Belk Companies since 1986 and on the Board of Directors of BSS since 1996. Mr. Glenn is the Chairman and Manager of Quality Oil Company, LLC and is a Director of Reliable Tank Line, Limited Partnership in Winston-Salem, North Carolina. He also serves on the Boards of Directors of Crisis Control Ministry, Special Children's School, Village Tavern, Inc. and Winston-Salem Business, Inc. Mr. Glenn is on the Forsyth County Advisory Board of Wachovia Bank, N.A. Karl G. Hudson, Jr. Mr. Hudson was employed in the Belk store organization from 1933 until his retirement in 1989. During that time, he served in many positions in the organization, including Executive Vice President and Supervising Partner and as a director of the Hudson-Belk Company from 1972 until 1989. He also served as Executive Vice President and Supervising Partner and as a director of the Belk-Hudson group of stores in Alabama and Mississippi from 1974 until 1989. Mr. Hudson has also served as a director of a number of the Belk Companies and on numerous management committees of BSS. Mr. Hudson has served as a member of the Boards of Directors of Carolina Power & Light Company, the Durham Corporation and First Corp. He has also served on the Boards of Davidson College, St. Andrews College, Peace College and Union Theological Seminary, the Downtown Raleigh Development Corp., the United Fund and the Raleigh Merchant's Bureau. John A. Kuhne. Mr. Kuhne serves as President and as a director of a number of the Belk Companies, including Belk-Simpson. Mr. Kuhne has served as the President of Belk-Simpson since 1983. He is currently 62 <PAGE> 71 Vice-Chairman of the Board of Directors of Summit Financial Corporation and is a past trustee of Presbyterian College and Furman University. B. Frank Matthews, II. Mr. Matthews has been employed by the Belk store organization since 1937, and has served as Executive Vice President and Supervising Partner of the Belk-Matthews group since 1971. Mr. Matthews has served on numerous committees of BSS, and he currently serves as Chairman of the Employee Benefits Committee of the Board of Directors of BSS. Mr. Matthews has served as Chairman of the Board of Directors and director of the Gastonia Federal Savings & Loan Association, director of the Public Service Co. of North Carolina, Inc., President of the Garrison Foundation, Inc. and a member of the Board of Trustees of Myers-Ti-Caro Foundation, Inc. Mr. Matthews has also served as president of the Gastonia Downtown Development Corporation, the Gaston County United Way and the Gastonia Merchant's Association. He has been a director of the Gastonia Chamber of Commerce, the Gastonia YMCA, the Gastonia Industrial Diversification Commission, the Gastonia Kiwanis Club, Davidson College and Chatham Hall. COMMITTEES OF THE NEW BELK BOARD OF DIRECTORS Executive Committee. Promptly following the Reorganization, the New Belk Board will establish an Executive Committee. The Executive Committee is expected to be composed of Messrs. John M. Belk, Thomas M. Belk, Jr., H.W. McKay Belk and John R. Belk. The Executive Committee will possess all of the powers of the New Belk Board, except the power to authorize the issuance of stock, approve mergers, declare dividends and certain other powers specifically reserved under the Delaware General Corporation Law ("DGCL") to the New Belk Board. Audit Committee. Promptly following the Reorganization, the New Belk Board will establish an Audit Committee. The Audit Committee is expected to be composed of Messrs. Karl G. Hudson, Jr., B. Frank Matthews, II, J. Kirk Glenn, Jr., John A. Kuhne and John R. Belk. The Audit Committee will be established to make recommendations concerning the engagement of independent public accountants, review with the independent public accountants the plans and results of the audit engagement, approve professional services provided by the independent public accountants, review the independence of the independent public accountants, consider the range of audit and non-audit fees and review the adequacy of New Belk's internal accounting controls. COMPENSATION OF DIRECTORS New Belk intends to pay its directors fees for their services as directors. Directors are expected to receive annual compensation of $20,000, a meeting fee of $1,000 for each Board of Directors meeting attended and reimbursement of expenses incurred in attending meetings. DIRECTORS AND OFFICERS INSURANCE New Belk intends to obtain a directors and officers liability insurance policy with coverage of $3 million per loss and an aggregate limit of $3 million for all losses within each one year policy period with a $250,000 retention. The directors and officers liability insurance will insure (i) the officers and directors of New Belk against any claim arising out of an alleged wrongful act by such persons while acting as directors and officers of New Belk and (ii) New Belk to the extent that it has indemnified the directors and officers for such loss. 63 <PAGE> 72 EXECUTIVE OFFICERS Set forth below are the names and titles of certain of the persons who, in addition to those directors who are also expected to serve as executive officers of New Belk identified under "-- Directors," are expected to serve either as executive officers of New Belk following the Reorganization. <TABLE> <CAPTION> NAME AGE OFFICE - ---- --- ------ <S> <C> <C> James M. Berry.............. 67 Executive Vice President, Finance Ralph A. Pitts.............. 44 Executive Vice President, General Counsel Fred W. Asher............... 57 Executive Vice President, Systems William L. Wilson........... 50 Executive Vice President, Real Estate and Store Planning Bill R. Walton.............. 49 Senior Vice President, Treasurer and Controller </TABLE> James M. Berry. Mr. Berry will serve as Executive Vice President, Finance of New Belk. Mr. Berry has been Executive Vice President, Finance of BSS since 1995. From 1992 to 1995, he was retired. From 1988 to 1992, Mr. Berry was Vice Chairman for NationsBank, Texas, NA, a banking company. Mr. Berry currently serves as a member of the Board of Directors of NationsBank Houston (Vice-Chairman), NationsBank, Texas, N.A., Williams-Sonoma Corporation, Houston Casualty Company, The Museum of Fine Arts, The Houston Museum of National Science, Central Houston, Inc., the Metropolitan Board of the YMCA of the Greater Houston Area, The Greater Houston Partnership and Junior Achievement of Southeast Texas. Ralph A. Pitts. Mr. Pitts will serve as Executive Vice President and General Counsel for New Belk. Mr. Pitts has been General Counsel of BSS since 1995. From 1985 to 1995, he was a partner in the law firm of King & Spalding in Atlanta, Georgia. Fred W. Asher. Mr. Asher will serve as Executive Vice President, Systems of New Belk. Mr. Asher has been Executive Vice President, Systems of BSS since 1995. From 1990 to 1995, he was Vice President and Chief Information Officer, Management Information Systems for Dayton Hudson Corporation, a large department store retailer located in the midwest. William L. Wilson. Mr. Wilson will serve as Executive Vice President, Real Estate and Store Planning for New Belk. Mr. Wilson has been Executive Vice President, Real Estate of BSS since 1992. From 1989 to 1992, he was Senior Vice President, Real Estate for BSS. Bill R. Walton. Mr. Walton will serve as Senior Vice President, Treasurer and Controller of New Belk. Mr. Walton has been the Senior Vice President and Controller of BSS since 1992. He also became the Treasurer of BSS in 1997. From 1987 to 1992, he was the Vice President and Controller for BSS. Mr. Walton is a Certified Public Accountant. 64 <PAGE> 73 EXECUTIVE COMPENSATION The following table sets forth certain summary information with respect to the compensation that was paid in fiscal year 1997 by BSS to Mr. John M. Belk and the four other persons who were the most highly compensated executive officers of New Belk at the end of fiscal year 1997 and whose annual salary and bonus compensation for fiscal year 1997 exceeded $100,000 (collectively, the "Named Executive Officers"): SUMMARY COMPENSATION TABLE <TABLE> <CAPTION> ANNUAL COMPENSATION(2)(3) ------------------------------- FISCAL ALL OTHER NAME AND PRINCIPAL POSITION(1) YEAR(4) SALARY BONUS COMPENSATION ------------------------------ ------- -------- -------- ------------ <S> <C> <C> <C> <C> John M. Belk, Chairman......................... 1997 $500,000 -- $165,092(5) Ralph A. Pitts, Executive Vice President and General Counsel.............................. 1997 387,000 -- 11,250(6) Thomas M. Belk, Jr., President................. 1997 350,000 -- 10,578(6) H.W. McKay Belk, President..................... 1997 350,000 -- 10,578(6) John R. Belk, President........................ 1997 350,000 -- 10,578(6) </TABLE> - --------------- (1) The principal position given for each of the Named Executive Officers is the principal position held as of December 15, 1997 at BSS. (2) All amounts reflect compensation paid by BSS unless otherwise indicated. (3) Does not include retirement benefits under the Supplemental Pension Plan (as defined herein) or the Pension Plan (as defined herein) (except for payments to John M. Belk). See "-- Supplemental Pension Plan" and "-- Pension Plan." (4) Fiscal year 1997 is the year ended February 1, 1997. (5) Reflects (i) the value of insurance premiums paid by certain of the Belk Companies in the amount of $20,000 with respect to a split-dollar life insurance policy for the benefit of Mr. John M. Belk and his wife, Mrs. Claudia W. Belk, (ii) $8,773 of benefits paid by BSS under the Belk Profit Sharing Plan (as defined herein), (iii) $36,982 of benefits paid by BSS under the Pension Plan (as defined herein) and (iv) $99,337 of above-market interest earned by Mr. Belk in fiscal year 1997 on compensation deferred in prior fiscal years pursuant to the Deferred Compensation Plan (as defined herein). (6) Reflects benefits paid by BSS under the Belk Profit Sharing Plan. See "-- Belk Profit Sharing Plan." PENSION PLAN BSS maintains a pension plan (the "Pension Plan") which covers substantially all of the employees of BSS and the Belk Companies. 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 for an employee will be an amount equal to (a) the total cash compensation paid to such employee by his employer through his payroll account during the plan year and reported on his Form W-2; plus (b) all elective pre-tax contributions made for him under any defined contribution plan sponsored by his employer; plus (c) all pre-tax medical premiums paid on his behalf under Section 125 of the Code; and excluding (d) all taxable fringe benefits reported on his Form W-2. BSS' 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 accordance with a set formula comprised of both a basic benefit (specified dollar amount) and a supplemental benefit. Current annual payments of $36,982 are made to Mr. John M. Belk and the estimated benefits payable upon retirement at normal retirement age for each other Named Executive Officer as of February 1, 1997 are $57,392, $66,088, $66,670 and $67,650 for Messrs. Ralph A. Pitts, Thomas M. Belk, Jr., H.W. McKay Belk and John R. Belk, respectively. 65 <PAGE> 74 SUPPLEMENTAL PENSION PLAN BSS maintains a supplemental executive retirement plan (the "Supplemental Pension Plan") which covers a select group of management and highly compensated employees (the "Covered Employees"). 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> $300,000............................ $ 75,000 $112,500 $150,000 $187,500 $225,000 350,000............................ 87,500 131,250 175,000 218,750 262,500 400,000............................ 100,000 150,000 200,000 250,000 300,000 500,000............................ 125,000 187,500 250,000 315,800 375,000 600,000............................ 150,000 225,000 300,000 375,000 450,000 750,000............................ 187,500 281,250 375,000 468,750 562,500 </TABLE> - --------------- (1) Mr. John M. Belk has the maximum of 35 credited years of service; Mr. Ralph Pitts has an estimated two credited years of service; Mr. Thomas M. Belk, Jr. has an estimated 17 credited years of service; Mr. H.W. McKay Belk has an estimated 19 credited years of services; and Mr. John R. Belk has an estimated 13 credited years of service. (2) The compensation covered by the Supplemental Pension Plan incudes base salary and any bonus received. For each of the Named Executive Officers, the current compensation covered by the Supplemental Pension Plan does not differ by more than 10% from the amount listed in the "Salary" column of the Summary Compensation table. The Supplemental Pension Plan is maintained primarily for the purpose of providing supplemental retirement benefits for the Covered Employees. 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 to which a Covered Employee is entitled is an annual amount computed in the form of a single life annuity equal to 2.5% of his Average Final Earnings for each year of service (in excess of five) up to a maximum of 35 years, reduced by any amounts received due to the Pension Plan and Primary Social Security Benefits. "Average Final Earnings" for purposes of the Supplemental Pension Plan is the average of the Covered Employee's salary for the highest five years of the last ten years of credited service. BELK PROFIT SHARING PLAN BSS maintained a profit sharing plan until December 31, 1997, when it was terminated and its participants' account balances were transferred to a 401(k) savings plan (the "Belk 401(k) Savings Plan" or "Plan"), which was adopted by BSS as of January 1, 1998. The former profit sharing plan and the Belk 401(k) Savings Plan are substantially identical with respect to participation, vesting and benefits. All employees of BSS (including officers and directors who are employees) may participate in the Plan after one year of service (1,000 hours) with any of the Belk Companies. Participating employees may make pre-tax and after-tax contributions, subject to limitations under the Code, of a percentage (not to exceed 10%) of their total compensation and such amounts (and the earnings thereon) are fully vested at all times. As part of the Plan, BSS makes contributions of (a) 1 1/2% of annual compensation towards a "Fully Vested Employer Contributions Account," which contributions are fully vested (including the earnings thereon); and (b) 100% "matching" of participating employees' contributions, up to 6% of annual compensation towards a "Basic Employer Contributions Account," which contributions become fully vested after five years of service (including the earnings thereon) or upon the employee's death, total disability or retirement. DEFERRED COMPENSATION PLAN The Belk Companies maintain a deferred compensation plan (the "Deferred Compensation Plan") which is administered by BSS. Members of senior management of the Belk Companies whose annual 66 <PAGE> 75 compensation from the Belk Company that employs them exceeds $80,000 may participate in the Deferred Compensation Plan. Participants in the Deferred Compensation Plan may elect to defer a portion of their regular compensation subject to certain limitations prescribed by the Deferred Compensation Plan. Eligible employees may enroll in the Deferred Compensation Plan every four years. The Belk Company that employs the participant is required to pay interest on the participant's deferred compensation at various rates between 9% and 15% per annum. Each participant defines the repayment schedule for deferred amounts and earnings thereon. No portion of the compensation paid to or earned by any of the Named Executive Officers during fiscal year 1997 was deferred pursuant to the Deferred Compensation Plan. LIMITATION OF LIABILITY AND INDEMNIFICATION New Belk's officers and directors will be indemnified against certain liabilities under the DGCL, the New Belk Certificate, the New Belk Bylaws and certain indemnification agreements to be entered into with New Belk. The New Belk Certificate requires New Belk to indemnify its directors and officers to the fullest extent permitted from time to time by the laws of Delaware. As permitted by the DGCL, the New Belk Certificate provides that a director will not be personally liable for monetary damages resulting from breaches of his fiduciary duty (except that the New Belk Certificate does not eliminate liability for breaches of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, violations under Section 174 of the DGCL or for any transaction from which the director derived an improper personal benefit). New Belk believes that these provisions are necessary to attract and retain qualified persons as directors and officers. 67 <PAGE> 76 CERTAIN RELATIONSHIPS AND TRANSACTIONS GENERAL The Belk Companies have historically been managed as a private family business owned primarily by members of the Belk family and local partner families and, as such, members of the Belk family and other members of management and their affiliates have entered into various transactions during the last three fiscal years with various Belk Companies and Surviving Belk Subsidiaries. In addition, various Belk Companies and Surviving Belk Subsidiaries have entered into transactions during the last three fiscal years in the ordinary course of business with various other Belk Companies. New Belk believes that all such transactions were on terms no less favorable to the Belk Companies and Surviving Belk Subsidiaries than terms available from unrelated parties for comparable transactions. Mr. John M. Belk and his immediate family collectively beneficially own, directly and indirectly, over 10% of each of the Belk Companies and Surviving Belk Subsidiaries that are parties to the transactions described below. CERTAIN TRANSACTIONS WITH MANAGEMENT AND BUSINESS RELATIONSHIPS BETWEEN THE BELK COMPANIES Hudson-Belk Company is a party to a Lease Agreement dated March 13, 1969 with PMC, Inc. ("PMC"), pursuant to which PMC leased to Hudson-Belk Company the building which was used by Hudson-Belk Company as the site of the Belk store in Smithfield, North Carolina (the "PMC Lease"). The PMC Lease expired in January 1998. Total rent paid by Hudson-Belk Company in calendar years 1994, 1995 and 1996 was $144,083, $143,112 and $147,307, respectively, and total rent expected to be paid in calendar year 1997 is approximately $153,524. Hudson-Belk Company agreed in December 1997 to extend the PMC Lease an additional two months, until March 31, 1998. Pursuant to this extension, Hudson-Belk Company will pay PMC a total of approximately $25,000 for the period from February 1, 1998 to March 31, 1998. Mr. Karl G. Hudson, Jr. and his immediate family beneficially own approximately 12% of the voting stock of PMC. Mr. Hudson serves as a director of PMC and is expected to serve as a member of the Board of Directors of New Belk. Mr. John M. Belk also serves as a director of PMC and owns approximately 1.5% of the voting stock of PMC. Mr. Belk is expected to serve as Chairman of the New Belk Board and as an executive officer of New Belk. UES, a wholly-owned subsidiary of Belk of Lawrenceville, Va., Inc., is a party to certain contracts (the "UES Contracts") with BSS and the Belk Companies, pursuant to which UES provides equipment maintenance services on cash registers and other equipment for the Belk Companies. The UES Contracts are of varying terms, but are generally renewable on an annual basis. The aggregate amounts paid by BSS and the Belk Companies to UES during fiscal years 1995, 1996 and 1997 were $2,420,000, $2,397,000 and $2,356,000, respectively, and the aggregate amount expected to be paid by BSS and the Belk Companies to UES during fiscal year 1998 is $2,392,000. Belk Center provides accounts receivable management and collection services to the Belk Companies. Each Belk Company receiving such services pays Belk Center transaction fees to reimburse Belk Center for the costs that it incurs in providing such services. The aggregate amounts paid by the Belk Companies to Belk Center during fiscal years 1995, 1996 and 1997 were $18 million, $20 million and $21 million, respectively, and the aggregate amount expected to be paid by the Belk Companies to Belk Center during fiscal year 1998 is $21 million. Belk International is a North Carolina nonprofit corporation whose members are the Belk Companies. Belk International imports merchandise from non-U.S. sources for the Belk Companies. Belk International charges the Belk Companies prices for such merchandise that include only the direct costs incurred by Belk International to acquire such merchandise and an allocated portion of the administrative costs incurred by Belk International in acquiring such merchandise and selling it to the Belk Companies. The aggregate amounts paid by the Belk Companies to Belk International during fiscal years 1995, 1996 and 1997 were $16.8 million, $18.8 million and $16.7 million, respectively, and the aggregate amount expected to be paid by the Belk Companies to Belk International during fiscal year 1998 is $11.5 million. BSS is a North Carolina corporation whose shareholders are Belk Companies. BSS provides various administrative services to the Belk Companies, including accounts payable and payroll services, merchandise buying, sales promotion, real estate management, store planning, employee benefits, training, loss prevention 68 <PAGE> 77 and management information services and legal, tax and accounting services. Each Belk Company pays BSS annually a pro rata portion of the budgeted operating expenses of BSS for each fiscal year based upon each Belk Company's sales as a percentage of total sales of all of the Belk Companies for the twelve-month period ending prior to the approval of the BSS annual budget. BSS also charges each Belk Company a transaction fee for certain types of transactions, such as accounts payable, payroll and management information services, and is reimbursed by the Belk Companies for certain out-of-pocket expenses incurred by BSS on their behalf. The aggregate amounts paid by the Belk Companies to BSS during fiscal years 1995, 1996 and 1997 were $69.5 million, $76.9 million and $71.6 million, respectively, and the aggregate amount expected to be paid by the Belk Companies to BSS during fiscal year 1998 is $75.3 million (excluding the Reorganization Expenses). Within the past three fiscal years, a number of the Belk Companies have made loans to other Belk Companies (collectively, the "Intercompany Loans") and have guaranteed loans made by third party lenders to other Belk Companies (collectively, the "Guaranteed Loans"). The Intercompany Loans generally bear interest at 30 day LIBOR plus approximately 70 basis points and are due on demand. The proceeds of the Intercompany Loans have been used generally to finance working capital needs and to pay other operating expenses of the Belk Companies. The Guaranteed Loans bear interest at rates ranging from 30 to 90 day LIBOR plus 80 to 180 basis points and mature at times ranging from three to seven years. The proceeds of the Guaranteed Loans have been used to refinance existing debt, purchase stock in other Belk Companies and for capital improvements. The aggregate principal amount of Intercompany Loans outstanding as of November 1, 1997 was approximately $141 million. The aggregate principal amount of Guaranteed Loans outstanding at November 1, 1997 was approximately $153 million. On November 21, 1996, Sarah Belk Gambrell sold an aggregate of 3,610.33 shares of common stock of the corporations that owned and operated the 42 Leggett stores acquired in the Leggett Acquisition to Belk of Virginia, Inc. ("Belk of Virginia"). Mrs. Gambrell received an aggregate of approximately $3.2 million from Belk of Virginia in exchange for such shares. Mrs. Gambrell is expected to serve as a member of the New Belk Board. On November 21, 1996, the immediate family of Thomas M. Belk, Jr. sold an aggregate of 1,009 shares of common stock of the corporations that owned and operated the 42 Leggett stores acquired in the Leggett Acquisition to Belk of Virginia. Mr. Belk and his immediate family received an aggregate of approximately $982,000 in exchange for such shares. Mr. Belk is expected to serve as a member of the New Belk Board and as an executive officer of New Belk. On November 21, 1996, the immediate family of H.W. McKay Belk sold an aggregate of 1,104 shares of common stock of the corporations that owned and operated the 42 Leggett stores acquired in the Leggett Acquisition to Belk of Virginia. Mr. Belk and his immediate family received an aggregate of approximately $999,000 in exchange for such shares. Mr. Belk is expected to serve as a member of the New Belk Board and as an executive officer of New Belk. On November 21, 1996, John R. Belk and his immediate family sold an aggregate of 878 shares of common stock of the corporations that owned and operated the 42 Leggett stores acquired in the Leggett Acquisition to Belk of Virginia. Mr. Belk and his immediate family received an aggregate of approximately $838,000 in exchange for such shares. Mr. Belk is expected to serve as a member of the New Belk Board and as an executive officer of New Belk. Within the last three fiscal years, the Belk Companies have from time to time purchased stock of other Belk Companies from individual shareholders. Such purchases were made generally to provide a source of liquidity for Existing Belk Shareholders who desired to sell shares of Belk Companies Common Stock. All of such equity interests of the Belk Companies in other Belk Companies (other than shares of common stock owned in any of the Belk Companies by Belk-Simpson) will be canceled in the Reorganization. Within the last three fiscal years, certain Belk Companies have from time to time merged with other Belk Companies. Such mergers were accomplished in order to consolidate the Belk store organization's market share in certain markets, enable Belk Companies that otherwise would not be able to maintain store operations because of their financial condition to do so and enable Belk Companies to consolidate capital in order to renovate existing stores or enter new markets, among other reasons. 69 <PAGE> 78 INDEBTEDNESS OF MANAGEMENT Belk Finance Company agreed to purchase loans made by Wachovia Bank, N.A. on April 23, 1996 to Mr. Thomas M. Belk, Jr. (the "Tim Belk Loan") and by NationsBank, N.A. on April 19, 1996 to Mr. H.W. McKay Belk (the "McKay Belk Loan"), both in the amount of $800,000 from such banks in the event of default on such loans. Both the Tim Belk Loan and the McKay Belk Loan were made to finance the acquisition by Mr. Thomas M. Belk, Jr. and Mr. H.W. McKay Belk of stock in various Belk Companies. Each Loan bears interest at the prime rate as established by the Federal Reserve Bank, less 0.5% per annum, payable quarterly, and matures on May 1, 1998. On November 1, 1997, the Tim Belk Loan was outstanding in the principal amount of $156,000 and the McKay Belk Loan was outstanding in the principal amount of $197,166. Mr. Thomas M. Belk, Jr. and Mr. H.W. McKay Belk currently serve as members of the Boards of Directors and as executive officers of most of the Belk Companies and are expected to serve as members of the New Belk Board and as executive officers of New Belk. Belk Finance Company agreed to purchase a loan made by Wachovia Bank, N.A. on August 1, 1997 to Brothers Investment Company (the "Brothers Investment Loan") in the amount of $5 million from such bank in the event of a default on such loan. The Brothers Investment Loan was made to refinance accumulated debt of Brothers Investment Company. The Brothers Investment Loan bears interest at the prime rate as established by the Federal Reserve Bank, less 0.5% per annum, payable quarterly, and matures on August 1, 1998. On November 1, 1997, the Brothers Investment Loan was outstanding in the principal amount of $5 million. John M. Belk, who currently serves as Chairman of the Board of all of the Belk Companies and is expected to serve as Chairman of the New Belk Board and as an executive officer of New Belk, owns 50% of Brothers Investment Company and is a director of Brothers Investment Company. The estate of Thomas M. Belk, of which John M. Belk is a co-executor, owns the remaining 50% of Brothers Investment Company. 70 <PAGE> 79 SECURITY OWNERSHIP Security Ownership of New Belk. The following table sets forth, based on the number of shares of Belk Companies' Common Stock beneficially owned as of November 1, 1997, and the number of shares of New Belk Class A Common Stock expected to be outstanding after consummation of the Reorganization, the beneficial ownership of New Belk Class A Common Stock, by (i) each person who is expected to be the beneficial owner of more than 5% of the New Belk Class A Common Stock; (ii) the Chief Executive Officer of New Belk and the other Named Executive Officers; (iii) each director of New Belk; and (iv) all executive officers and directors of New Belk as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ------------------------------------------------------------------- SHARES OF NEW BELK CLASS A PERCENT OF TOTAL NEW BELK CLASS A COMMON STOCK BENEFICIALLY OWNED COMMON STOCK OUTSTANDING BENEFICIAL OWNERS AFTER THE REORGANIZATION AFTER THE REORGANIZATION(1) ----------------- ------------------------------- --------------------------------- <S> <C> <C> John M. Belk(2)(3)(4)(5)(6)(7)(8)(9)... 18,898,267 31.5% (Director and Executive Officer) Thomas M. Belk, Jr.(3)(6)(7)(10)....... 7,571,507 12.6% (Director and Executive Officer) H. W. McKay Belk(3)(6)(7)(11).......... 7,444,713 12.4% (Director and Executive Officer) John R. Belk(3)(6)(7)(12).............. 7,411,529 12.4% (Director and Executive Officer) Sarah Belk Gambrell(8)(9).............. 11,760,389 19.6% (Director) David Belk Cannon(17).................. 2,537,208 4.2% (Director) James K. Glenn, Jr.(15)(16)............ 2,250,195 3.8% (Director) Karl G. Hudson, Jr..................... 5,454 * (Director) B. Frank Matthews, II(18)(19)(20)...... 567,095 * (Director) John A. Kuhne(21)...................... 311,796 * (Director) James M. Berry......................... 0 * (Executive Officer) Ralph A. Pitts......................... 0 * (Executive Officer) Fred W. Asher.......................... 0 * (Executive Officer) William L. Wilson...................... 0 * (Executive Officer) Bill R. Walton......................... 0 * (Executive Officer) Leroy Robinson(3)(6)(7)................ 6,170,306 10.3% Katherine McKay Belk(3)(6)(7)(14)...... 7,526,332 12.5% Katherine Belk Morris(3)(6)(7)(13)..... 7,447,849 12.4% All Directors and Executive Officers as a group (15 persons)................. 37,683,162 62.8% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H.W. McKay Belk, John R. Belk, Leroy Robinson, Katherine McKay Belk, Katherine Belk Morris, James M. Berry, Ralph A. Pitts, Fred W. Asher, William L. Wilson and Bill R. Walton, 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell, 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon, 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr., P. O. Box 71 <PAGE> 80 2736, Winston-Salem, N.C. 27102; Karl G. Hudson, Jr., 2416 White Oak Road, Raleigh, N.C. 27609; B. Frank Matthews, II, 2240 Remount Road, Gastonia, N.C. 28054; John A. Kuhne, 14 South Main Street, Greenville, S.C. 29601. (1) Calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock expected to be outstanding after consummation of the Reorganization (which excludes 246,174 shares of New Belk Class A Common Stock that will be acquired by Belk-Simpson in the Belk-Simpson Merger). See "Determination of Applicable Exchange Ratios." (2) Includes 2,080,251 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (3) Includes 1,484,208 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (4) Includes 15,433 shares held by Mary Claudia, Inc., of which John M. Belk is the majority shareholder. (5) Represents 6,549 shares held by Claudia Watkins Belk Grantor Trust dated 2/23/96, 21,863 shares held by Claudia W. Belk, Tr. u/a f/b/o Mary Claudia Belk, and 102,089 shares of Mary Claudia Belk Irrevocable Trust dated 1/4/94. Claudia W. Belk, Trustee, is John M. Belk's wife. (6) Includes 444,266 shares held by Milburn Investment Company, of which the Estate of Thomas M. Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas M. Belk, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (7) Includes 4,241,832 shares held by Thomas M. Belk, Trustee dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (8) Includes 1,127,775 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (9) Includes 1,436,299 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (10) Includes 218,718 shares held by Thomas M. Belk, Jr. as custodian for his minor children, 136,282 shares held as custodian for the minor children of his brother, H. W. McKay Belk and 21,873 shares held by his spouse, Sarah F. Belk. (11) Includes 218,787 shares held by H. W. McKay Belk as custodian for his minor children and 23,332 shares held by his spouse, Nina F. Belk. (12) Includes 185,521 shares held by John R. Belk as custodian for his minor children and 19,883 shares held by his spouse, Kimberly D. Belk. (13) Includes 212,835 shares held by Katherine Belk Morris as custodian for her minor children and 23,332 shares held by her spouse, Charles Walker Morris. (14) Includes 402,981 shares held by Katherine M. Belk as custodian for her minor grandchildren. (15) Includes 872 shares held by his spouse, Madlon C. Glenn. (16) Includes 1,501,250 shares held by James K. Glenn, Jr., Trustee under Will of Daisy Belk Mattox, 195,619 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, 72 <PAGE> 81 Jr., et al and 391,763 shares held by John Belk Stevens Trust U/W ITEM III, Section B f/b/o Mary S. Whelchel. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (17) Includes 651,185 shares held by Residuary Trust u/w Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (18) Includes 166,788 shares held by First Union National Bank of N.C., B. Frank Matthews, II and Annabelle Z. Royster, Co-Trustees under the Will of J. H. Matthews, Jr. The Trustees named have voting and investment power with respect to such shares. (19) Includes 80,699 shares held by Robinson Investment Company. B. Frank Matthews, II and his sister, Elizabeth M. Welton, share voting and investment power with respect to such shares. (20) Includes 81,828 shares held by his spouse, Betty C. Matthews. (21) Includes 290,024 shares held by his spouse, Lucy S. Kuhne. Security Ownership of Belk Companies. The Prospectus Supplement for each Belk Company sets forth information concerning the beneficial ownership of such Belk Company's common stock as of November 1, 1997, including (i) each person who is the beneficial owner of more than 5% of the outstanding shares of common stock of such Belk Company; (ii) the chief executive officer and the four other most highly compensated officers of such Belk Company; (iii) each director of such Belk Company; and (iv) all executive officers and directors of such Belk Company as a group. 73 <PAGE> 82 DESCRIPTION OF NEW BELK CAPITAL STOCK GENERAL New Belk's authorized capital stock consists of 200,000,000 shares of New Belk Class A Common Stock, 200,000,000 shares of New Belk Class B Common Stock and 20,000,000 shares of Preferred Stock, par value of $.01 per share (the "Preferred Stock"). As of the date hereof, there is issued and outstanding one share of New Belk Class A Common Stock that is held of record by one stockholder. Assuming that (i) all of the Belk Companies participate in the Reorganization and (ii) none of the Existing Belk Shareholders exercise Applicable State Law Appraisal Rights in any Merger, there will be 60,000,008 shares of New Belk Class A Common Stock outstanding after the consummation of the Reorganization (excluding 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger). As of the date hereof, there are no shares of Preferred Stock outstanding. The following description is a summary and is subject to and qualified in its entirety by reference to the provisions of the New Belk Certificate, the form of which has been filed as an exhibit to the Registration Statement of which this Proxy Statement/Prospectus forms a part and is attached as Exhibit B to the Reorganization Agreement. NEW BELK COMMON STOCK The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion requirements and transfer restrictions in respect of the shares of New Belk Class A Common Stock as described below. Voting Rights. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. The holders of both classes of New Belk Common Stock are entitled to vote and will vote together as a single class on all matters presented to the stockholders for their vote or approval except as otherwise required by Delaware Law. Dividends. The holders of New Belk Class A Common Stock and New Belk Class B Common Stock are entitled to receive dividends at the same rate if and when such dividends are declared by the New Belk Board out of assets legally available therefor after payment of dividends required to be paid on shares of Preferred Stock, if any. If a dividend or distribution payable in either class of New Belk Common Stock is payable on such class of New Belk Common Stock, New Belk must also make a pro rata and simultaneous dividend or distribution on the other class of New Belk Common Stock payable in shares of such other class. Restrictions on Transfer. If a holder of New Belk Class A Common Stock transfers such shares, whether by sale, assignment, gift, bequest, appointment or otherwise, to a person other than a Class A Permitted Holder, such shares will be automatically converted into shares of New Belk Class B Common Stock. In the case of a pledge of shares of New Belk Class A Common Stock to a financial institution, such shares shall remain subject to the transfer restrictions and conversion requirements in the New Belk Certificate. In the event of foreclosure or other similar action by the pledgee, such pledged shares of New Belk Class A Common Stock may only be transferred to a Class A Permitted Holder or converted into shares of New Belk Class B Common Stock, as the pledgee may elect. Conversion. New Belk Class B Common Stock has no conversion rights. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. In the event of a transfer of shares of New Belk Class A Common Stock to any person other than a Class A Permitted Holder, each share of New Belk Class A Common Stock so transferred will be automatically converted into one share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert to New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. 74 <PAGE> 83 Liquidation. In the event of liquidation of New Belk, after payment of the debts and other liabilities of New Belk and after making provisions for the holders of Preferred Stock, if any, the remaining assets of New Belk will be distributable ratably among the holders of New Belk Class A Common Stock and New Belk Class B Common Stock treated as a single class. Other Provisions. The holders of New Belk Class A Common Stock and New Belk Class B Common Stock are not entitled to preemptive rights. None of the New Belk Class A Common Stock or New Belk Class B Common Stock may be subdivided or combined in any manner unless the other class is subdivided or combined in the same proportion. PREFERRED STOCK The New Belk Board is authorized to issue shares of Preferred Stock at any time and from time to time, in one or more series, and to fix or alter the designations, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions of such shares of Preferred Stock, including without limitation of the generality of the foregoing, dividend rights, dividend rates, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices and liquidation preferences of any wholly unissued series of preferred shares and the number of shares constituting any of such series and the designation thereof, or any of them; and to increase or decrease the number of shares of a series, but not below the number of shares of such series then outstanding. In case the number of shares of any series is decreased, the shares constituting such decrease will resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. TRANSFER AGENT AND REGISTRAR The principal transfer agent and registrar for New Belk Common Stock will be New Belk. CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK The authorized but unissued shares of New Belk Common Stock and Preferred Stock are available for future issuance without stockholder approval. Subject to the transfer restrictions and conversion requirements of New Belk Class A Common Stock, these additional shares may be utilized for a variety of corporate purposes, including corporate acquisitions, employee benefit plans and future public offerings to raise capital. CERTAIN CHARTER AND BYLAW PROVISIONS General. Stockholders' rights and related matters are governed by the DGCL, the New Belk Certificate and the New Belk Bylaws. Certain provisions of the New Belk Certificate and the New Belk Bylaws, which are summarized below, tend to limit stockholders' ability to influence matters pertaining to corporate governance and may have the effect of impeding the acquisition of control of New Belk by means of a tender offer, proxy fight, merger, open market purchases or otherwise in a transaction not approved by the New Belk Board. The New Belk Board has no present intention to introduce other measures which might have an anti-takeover effect. The New Belk Board reserves the right, however, to introduce such measures in the future. Classified Board; Removal of Directors. The New Belk Bylaws provide that the New Belk Board will consist of not less than two nor more than 18 directors, with the exact number of directors to be determined from time to time by the New Belk Board. The New Belk Certificate provides that the New Belk Board will be divided into three classes and, after an initial term, each director will be elected for a three-year term. See "Management -- Directors." The New Belk Certificate provides that directors may only be removed for cause upon the affirmative vote of all other members of the New Belk Board or the holders of two-thirds of the issued and outstanding shares of New Belk then entitled to vote generally in the election of directors. See "Management -- Directors and Executive Officers." As a result, it will be more difficult to change the composition of the New Belk Board, which may discourage or make more difficult any attempt by a person or group of persons to obtain control of New Belk. 75 <PAGE> 84 Authorized But Unissued New Belk Common Stock and Preferred Stock. The existence of authorized but unissued and unreserved New Belk Common Stock and Preferred Stock may enable the New Belk Board to issue shares to persons friendly to current management which could render more difficult or discourage an attempt to obtain control of New Belk by means of a proxy contest, tender offer, merger, open market purchases or otherwise, and thereby protect the continuity of New Belk's management. Business Combinations. Section 203 of the DGCL restricts a wide range of transactions ("business combinations") between a corporation and an interested stockholder. An "interested stockholder" is, generally, any person who beneficially owns, directly of indirectly, 15% or more of the corporation's outstanding voting stock. Business combinations are broadly defined to include (i) mergers or consolidations with, (ii) sales or other dispositions of more than 10% of the corporation's assets to, (iii) certain transactions resulting in the issuance or transfer of any stock of the corporation or any subsidiary to, (iv) certain transactions which would result in increasing the proportionate share of stock of the corporation or any subsidiary owned by, or (v) receipt of the benefit (other than proportionately as a stockholder) of any loans, advances or other financial benefits by, an interested stockholder. Section 203 provides that an interested stockholder may not engage in a business combination with the corporation for a period of three years from the time of becoming an interested stockholder unless (a) the board of directors approved either the business combination or the transaction which resulted in the person becoming an interested stockholder prior to the time such person became an interested stockholder, (b) upon consummation of the transaction which resulted in the person becoming an interested stockholder, that person owned at least 85% of the corporation's voting stock (excluding shares owned by persons who are officers and also directors and shares owned by certain employee stock plans) or (c) the business combination is approved by the board of directors and authorized by the affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder. The restrictions on business combinations with interested stockholders contained in Section 203 do not apply to a corporation whose certificate of incorporation contains a provision expressly electing not be governed by the statute. The New Belk Certificate does not contain a provision electing to "opt-out" of Section 203. Special Meetings; Prohibition of Actions by Written Consent. Pursuant to the DGCL, a special meeting of stockholders may be called by the board of directors or by any other person authorized to do so in the certificate of incorporation or the bylaws. The New Belk Certificate provides that special meetings of stockholders may only be called by a majority of the entire New Belk Board or the Chairman of the New Belk Board. In addition, the New Belk Certificate provides that any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of the stockholders at an annual or special meeting, and may not be taken by a written consent of the stockholders. Restrictions on Amendments to Bylaws. Under the New Belk Certificate, the New Belk Bylaws may only be amended by a majority vote of the New Belk Board or the affirmative vote of two-thirds of the outstanding voting stock of New Belk, voting together as a single class. This supermajority restriction makes it more difficult for the New Belk Stockholders to amend the New Belk Bylaws and thus enhances the power of the Board of Directors vis-a-vis stockholders with regard to matters of corporate governance that are governed by the New Belk Bylaws. DIRECTORS' LIABILITY The New Belk Certificate includes provisions to eliminate the personal liability of its directors for monetary damages resulting from breaches of their fiduciary duty (provided that such provision does not eliminate liability for breaches of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, violations under Section 174 of the DGCL or for any transaction from which the director derived an improper personal benefit). New Belk believes that these provisions are necessary to attract and retain qualified persons as directors and officers. 76 <PAGE> 85 COMPARISON OF RIGHTS OF HOLDERS OF BELK COMPANIES COMMON STOCK AND NEW BELK CLASS A COMMON STOCK Upon consummation of the Reorganization, and to the extent they receive shares of New Belk Class A Common Stock, shareholders of each Belk Company, which are incorporated in various states, will become stockholders of New Belk, a Delaware corporation. The rights of Existing Belk Shareholders will thereafter be governed by applicable Delaware law, including the DGCL, and by the New Belk Certificate and New Belk Bylaws. The Prospectus Supplement for each Belk Company includes a summary of the material differences between the rights of the Existing Belk Shareholders and New Belk Shareholders as a result of differences in the DGCL and Applicable State Corporate Law for each such Belk Company (Arkansas, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee, Texas or Virginia), and between the New Belk Certificate and New Belk Bylaws, on the one hand, and the certificates or articles of incorporation and bylaws of each such Belk Company, on the other hand. Such summary does not purport to be a complete statement of the difference in the rights of Existing Belk Shareholders and New Belk Stockholders and is qualified in its entirety by reference to the full text of the New Belk Certificate and the New Belk Bylaws, each of the Belk Companies' certificates or articles of incorporation and bylaws, the DGCL and the Applicable State Corporate Law. EXPERTS The combined financial statements of the Belk Companies as of February 3, 1996 and February 1, 1997, and for each of the years in the three-year period ended February 1, 1997, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The financial statements of Belk Brothers Company and Subsidiaries as of February 3, 1996 and February 1, 1997 and for each of the years in the three-year period ended February 1, 1997, and the financial statements of Belk Enterprises, Inc. and Subsidiaries, Belk Department Store of Greenville, N.C., Inc., Belk of Miss, Inc., Belk-Lindsey Stores, Inc. and Hudson-Belk Company as of February 1, 1997 and for the year then ended, have been included in the applicable Prospectus Supplement for such Belk Companies and in the Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The reports of KPMG Peat Marwick LLP covering the February 1, 1997 financial statements of Belk Enterprises, Inc. and Subsidiaries and Belk-Lindsey Stores, Inc. refer to the adoption of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." LEGAL MATTERS The validity of the shares of New Belk Common Stock being registered under the Registration Statement of which this Proxy Statement/Prospectus forms a part will be passed upon for New Belk by King & Spalding, Atlanta, Georgia. 77 <PAGE> 86 THE BELK COMPANIES INDEX TO HISTORICAL COMBINED FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Report of KPMG Peat Marwick LLP, Independent Auditors....... F-2 Combined Balance Sheets..................................... F-3 Combined Statements of Income............................... F-4 Combined Statements of Shareholders' Equity................. F-5 Combined Statements of Cash Flows........................... F-6 Notes to Combined Financial Statements...................... F-8 </TABLE> F-1 <PAGE> 87 INDEPENDENT AUDITORS' REPORT The Boards of Directors of The Belk Companies: We have audited the accompanying combined balance sheets of the Belk Companies (the "Companies") as of February 3, 1996 and February 1, 1997, and the related combined statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended February 1, 1997. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined 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 combined financial statements referred to above present fairly, in all material respects, the financial position of the Belk Companies as of February 3, 1996 and February 1, 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended February 1, 1997, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Charlotte, North Carolina November 14, 1997 F-2 <PAGE> 88 THE BELK COMPANIES COMBINED BALANCE SHEETS (IN THOUSANDS) <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents............................ $ 74,408 $ 56,115 $ 18,063 Accounts receivable, net............................. 263,161 335,914 325,954 Merchandise inventory................................ 365,902 425,415 527,687 Prepaid income taxes................................. 2,076 2,682 19,787 Deferred income taxes................................ 5,648 6,990 8,482 Prepaid expenses and other current assets............ 29,425 26,646 17,158 ---------- ---------- ---------- Total current assets................................... 740,620 853,762 917,131 Investments in unconsolidated entities................. 30,613 33,750 36,860 Investment securities.................................. 33,210 32,781 35,636 Property and equipment, net............................ 430,376 377,770 396,743 Intangible assets, net................................. 10,386 26,047 21,326 Other assets........................................... 15,774 34,790 28,301 ---------- ---------- ---------- Total assets........................................... $1,260,979 $1,358,900 $1,435,997 ========== ========== ========== LIABILITIES, DEFERRED INCOME AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable..................................... $ 118,032 $ 126,710 $ 159,337 Accrued expenses..................................... 47,830 59,709 67,013 Accrued income taxes................................. 3,323 5,680 -- Lines of credit and notes payable.................... 116,327 187,272 186,766 Current installments of long-term debt and capital lease obligations................................. 31,565 31,638 34,559 ---------- ---------- ---------- Total current liabilities.............................. 317,077 411,009 447,675 Deferred income taxes.................................. -- 31,481 38,277 Long-term debt and capital lease obligations, excluding current installments................................. 146,876 184,372 208,594 Deferred compensation and other noncurrent liabilities.......................................... 41,620 48,121 50,672 ---------- ---------- ---------- Total liabilities...................................... 505,573 674,983 745,218 ---------- ---------- ---------- Deferred income........................................ 6,700 11,901 11,164 ---------- ---------- ---------- Shareholders' equity: Common stock......................................... 88,949 70,885 70,838 Paid-in capital...................................... 470 470 470 Retained earnings.................................... 640,236 578,525 581,195 Net unrealized gains on investments.................. 19,051 22,136 27,112 ---------- ---------- ---------- Total shareholders' equity............................. 748,706 672,016 679,615 ---------- ---------- ---------- Total liabilities, deferred income and shareholders' equity............................................... $1,260,979 $1,358,900 $1,435,997 ========== ========== ========== </TABLE> See accompanying notes to combined financial statements. F-3 <PAGE> 89 THE BELK COMPANIES COMBINED STATEMENTS OF INCOME (IN THOUSANDS) <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> <C> <C> Revenues....................... $1,694,422 $1,685,470 $1,772,613 $1,138,615 $1,342,918 Cost of goods sold (including occupancy and buying expenses).................... 1,151,713 1,149,270 1,205,687 774,294 907,654 Selling, general and administrative expenses...... 450,356 465,375 470,018 335,572 380,793 ---------- ---------- ---------- ---------- ---------- Income from operations......... 92,353 70,825 96,908 28,749 54,471 Interest expense............... (21,440) (20,864) (27,554) (18,191) (27,472) Interest income................ 3,703 4,191 4,873 3,765 2,559 Gain (loss) on sale of property and equipment................ 619 5,242 21,328 19,792 (177) Gain on sale of investments.... 9 3,370 1,882 408 416 Other income (expense), net.... (874) (43) 1,816 1,720 (335) ---------- ---------- ---------- ---------- ---------- Income from continuing operations before income taxes and equity in earnings of unconsolidated entities... 74,370 62,721 99,253 36,243 29,462 Income taxes................... 28,461 22,387 38,802 14,135 11,528 ---------- ---------- ---------- ---------- ---------- Income from continuing operations before equity in earnings of unconsolidated entities..................... 45,909 40,334 60,451 22,108 17,934 Equity in earnings of unconsolidated entities, net of income taxes.............. 984 2,184 4,046 505 442 ---------- ---------- ---------- ---------- ---------- Income from continuing operations................... 46,893 42,518 64,497 22,613 18,376 Discontinued operations: Income (loss) from discontinued operations, net of income tax expense (benefit) of $1,115, $834 and $(2,937) for fiscal years 1995, 1996 and 1997, respectively and $(2,280) and $(814) for the nine months ended November 2, 1996 and November 1, 1997, respectively.............. 1,731 1,298 (4,593) (3,567) (1,273) Gain (loss) on disposal of discontinued operations, net of income tax expense (benefit) of $29,897 in fiscal year 1997 and $(2,474) at November 1, 1997...................... -- -- 41,466 -- (3,870) ---------- ---------- ---------- ---------- ---------- Net income..................... $ 48,624 $ 43,816 $ 101,370 $ 19,046 $ 13,233 ========== ========== ========== ========== ========== </TABLE> See accompanying notes to combined financial statements. F-4 <PAGE> 90 THE BELK COMPANIES COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS) <TABLE> <CAPTION> NET UNREALIZED COMMON PAID-IN RETAINED GAINS (LOSSES) STOCK CAPITAL EARNINGS ON INVESTMENTS TOTAL ------- ------- -------- -------------- -------- <S> <C> <C> <C> <C> <C> Balance at February 1, 1994.................. $94,864 $478 $577,201 $ (45) $672,498 Unrealized gains on investments, net of income taxes............................... -- -- -- 8,306 8,306 Equity in net unrealized gains on investments held by unconsolidated entities............ -- -- -- 6,348 6,348 Cash dividends............................... -- -- (10,334) -- (10,334) Stock dividends.............................. 765 -- (765) -- -- Net income................................... -- -- 48,624 -- 48,624 Repurchase of stock.......................... (5,524) -- (2,635) -- (8,159) ------- ---- -------- ------- -------- Balance at January 31, 1995.................. 90,105 478 612,091 14,609 717,283 Unrealized gains on investments, net of income taxes............................... -- -- -- 1,574 1,574 Equity in net unrealized gains on investments held by unconsolidated entities............ -- -- -- 2,868 2,868 Cash dividends............................... -- -- (11,673) -- (11,673) Net income................................... -- -- 43,816 -- 43,816 Repurchase of stock.......................... (1,156) (8) (3,998) -- (5,162) ------- ---- -------- ------- -------- Balance at February 3, 1996.................. 88,949 470 640,236 19,051 748,706 Unrealized gains on investments, net of income taxes............................... -- -- -- 733 733 Equity in net unrealized gains on investments held by unconsolidated entities............ -- -- -- 2,352 2,352 Cash dividends............................... -- -- (11,847) -- (11,847) Net income................................... -- -- 101,370 -- 101,370 Repurchase of stock.......................... (18,064) -- (151,234) -- (169,298) ------- ---- -------- ------- -------- Balance at February 1, 1997.................. 70,885 470 578,525 22,136 672,016 Unrealized gains on investments, net of income taxes (unaudited)................... -- -- -- 2,172 2,172 Equity in net unrealized gains on investments held by unconsolidated entities (unaudited)................................ -- -- -- 2,804 2,804 Cash dividends (unaudited)................... -- -- (8,846) -- (8,846) Net income (unaudited)....................... -- -- 13,233 -- 13,233 Repurchase of stock (unaudited).............. (47) -- (1,717) -- (1,764) ------- ---- -------- ------- -------- Balance at November 1, 1997 (unaudited)...... $70,838 $470 $581,195 $27,112 $679,615 ======= ==== ======== ======= ======== </TABLE> See accompanying notes to combined financial statements. F-5 <PAGE> 91 THE BELK COMPANIES COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS) <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> <C> <C> Cash flows from operating activities: Net income............................ $ 48,624 $ 43,816 $101,370 $ 19,046 $ 13,233 Adjustments to reconcile net income to net cash provided (used) by operating activities: Deferred income taxes................. (5,998) (1,338) 175 (849) 44 Deferred income....................... 531 910 759 447 (737) Depreciation and amortization......... 46,762 50,832 54,198 47,908 39,608 Gain on disposal of discontinued operations, net.................... -- -- (41,466) -- -- (Gain) loss on sale of property and equipment.......................... (619) (5,242) (21,328) (19,792) 177 Gain on sale of investments........... (9) (3,370) (1,882) (408) (416) Equity in earnings of unconsolidated entities, net of income taxes...... (984) (2,184) (4,046) (505) (442) (Increase) decrease in: Accounts receivable, net........... 11,026 (23) (32,729) (14,074) 9,960 Merchandise inventory.............. 6,389 (16,292) 17,462 (85,711) (102,272) Prepaid income taxes............... (252) (1,824) (606) (9,160) (17,105) Prepaid expenses and other assets........................... 1,063 (2,127) 6,706 29,732 18,312 Increase (decrease) in: Accounts payable and accrued expenses......................... 12,518 (8,151) (8,070) 14,004 39,931 Accrued income taxes............... 259 (5,495) 2,357 (3,323) (5,680) Deferred compensation and other liabilities...................... (1,373) 10,875 (5,607) (12,054) 6,542 -------- --------- -------- -------- --------- Net cash provided (used) by operating activities............................ 117,937 60,387 67,293 (34,739) 1,155 -------- --------- -------- -------- --------- Cash flows from investing activities: Distributions received from real estate partnership................. -- -- 3,375 875 -- Purchases of investments.............. (59,198) (6,545) (16,338) (10,471) (3,903) Proceeds from sales of investments.... 71,288 16,752 16,583 9,201 5,041 Purchases of property and equipment... (34,336) (50,329) (62,408) (53,744) (54,925) Proceeds from sales of property and equipment.......................... 2,830 9,589 27,275 26,085 2,469 Acquisition of businesses, net of cash acquired........................... -- (82,954) (36,145) (36,145) -- -------- --------- -------- -------- --------- Net cash used by investing activities... (19,416) (113,487) (67,658) (64,199) (51,318) -------- --------- -------- -------- --------- (continued) </TABLE> F-6 <PAGE> 92 THE BELK COMPANIES COMBINED STATEMENTS OF CASH FLOWS -- (CONTINUED) (IN THOUSANDS) <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> <C> <C> Cash flows from financing activities: Proceeds from notes payable........... $ -- $ 104,840 $158,018 $139,524 $ 18,540 Payments on notes payable............. -- -- (91,023) -- (67,762) Proceeds from issuance of long-term debt............................... 13,100 11,177 220,157 209,703 95,109 Principal payments on long-term debt and capital lease obligations...... (51,060) (64,126) (160,168) (147,847) (71,883) Net proceeds from (payments on) lines of credit.......................... (9,711) 487 36,233 62,235 48,716 Dividends paid........................ (10,334) (11,673) (11,847) (11,847) (8,846) Repurchase of common stock............ (8,159) (5,162) (169,298) (166,674) (1,763) -------- --------- -------- -------- --------- Net cash provided (used) by financing activities............................ (66,164) 35,543 (17,928) 85,094 12,111 -------- --------- -------- -------- --------- Net increase (decrease) in cash and cash equivalents........................... 32,357 (17,557) (18,293) (13,844) (38,052) Cash and cash equivalents at beginning of period............................. 59,608 91,965 74,408 74,408 56,115 -------- --------- -------- -------- --------- Cash and cash equivalents at end of period................................ $ 91,965 $ 74,408 $ 56,115 $ 60,564 $ 18,063 ======== ========= ======== ======== ========= Supplemental disclosures of cash flow information: Interest paid......................... $ 18,042 $ 18,700 $ 31,129 $ 21,062 $ 29,578 Income taxes paid..................... 33,747 31,323 33,062 28,378 31,851 Supplemental schedule of noncash investing and financing activities: Decrease in assets and liabilities due to sale of rental operations....... -- -- 167,318 -- -- Purchase of net assets of retail company through assumption of notes.............................. -- -- 51,923 51,923 -- </TABLE> See accompanying notes to combined financial statements. F-7 <PAGE> 93 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (1) BASIS OF PRESENTATION The Belk Companies (also referred to herein as the "Company") operate retail department stores in the southeastern United States. The Company's outlet store subsidiary is presented as a discontinued operation. The Belk Companies are listed in note 18. Ownership of the entities included in the Belk Companies is collectively held by approximately 585 individuals (referred to herein as the "Shareholders"). The Boards of Directors of the Belk Companies have approved and adopted an Agreement and Plan of Reorganization (the "Reorganization Agreement") that provides for the reorganization (the "Reorganization") of the Belk Companies into a single operating entity ("New Belk"). The surviving Belk Companies will be wholly-owned by New Belk. The Boards of Directors of the Belk Companies have recommended approval of the Reorganization Agreement and the Reorganization to the Shareholders at special meetings of each Belk Company called for the purpose of voting on such proposal. The accompanying combined financial statements have been prepared for purposes of depicting the combined financial position and results of operations of the Belk Companies, on a historical cost basis, which includes those entities expected by management to participate in the Reorganization. It is anticipated that the majority of the shareholders of one of the Belk Companies, Belk-Simpson Company, Greenville, South Carolina ("Belk-Simpson"), will redeem their shares in Belk-Simpson prior to the Reorganization. The prorata equity interest in Belk-Simpson held by shareholders that are anticipated to become shareholders of the combined entity under the proposed reorganization is included in the combined financial statements on the equity method of accounting. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. All significant intercompany transactions, balances and profits have been eliminated in combination. (2) ACQUISITIONS AND DISCONTINUED OPERATIONS On November 1, 1996, the Company acquired substantially all of the outstanding shares of the common stock of Leggett of Virginia, Inc. ("Leggett"). Leggett operated retail department stores generally in the southeastern United States. The acquisition was accounted for using the purchase method of accounting and, accordingly, Leggett's operating results subsequent to the date of acquisition have been included in the Company's combined financial statements. The aggregate purchase price was approximately $92 million which includes acquisition expenses. The aggregate purchase price, which was financed through available cash resources, proceeds from a credit facility and notes held by previous Leggett shareholders, has been allocated to the assets and liabilities of Leggett based upon their respective fair market values. The excess of purchase price over net assets acquired of approximately $17 million is being amortized over 15 years on a straight-line basis. The pro forma revenue and net income for the Company and Leggett for the year ended February 1, 1997 as if the acquisition had occurred at the beginning of the fiscal year are approximately $2 billion and $94 million, respectively. In November 1995, BAC, Inc., ("BAC"), a wholly-owned subsidiary of the Company, purchased all of the stock of Ivey Properties, Inc., ("Ivey"), a real estate investment trust. The largest holding of Ivey was an interest in JV Properties ("JV"), a retail mall joint venture. Prior to fiscal year 1996, Ivey owned 50% of JV, while the other 50% was owned by the Company. The acquisition was accounted for as a purchase. F-8 <PAGE> 94 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) Prior to the purchase, the Company's ownership of JV was accounted for using the equity method of accounting. Subsequent to the purchase, the Company has consolidated the assets, liabilities and operations of JV, which is comprised of the operations of a shopping mall facility located in Charlotte, North Carolina. In November 1996, JV's interest in the shopping mall, along with debt, was distributed to BAC in redemption of BAC's partnership interest in JV. Subsequently, the Company sold the stock of BAC to an unrelated third party and recognized a gain on the disposal of $41,466, net of income tax expense of $29,897. The accompanying combined financial statements present the results of operations of JV as discontinued operations. JV recorded revenues of $4,111 for the three months ended February 3, 1996 (after purchasing the net assets from Ivey) and $11,897 for 1997. In September 1997, the managers and the advisory board of TAGS Stores, LLC, ("TAGS"), the Company's discount outlet store subsidiary, adopted a formal plan to liquidate its operations during the 1997 Christmas retailing season. Accordingly, the results of operations of TAGS are presented as discontinued operations. During the nine months ended November 1, 1997, the Company provided for estimated losses on liquidation of the discontinued operations of $3.9 million, net of tax. TAGS, which was formed in February 1996, recorded revenues of $25.4 million for fiscal year 1997 and $18.3 million for the nine months ended November 1, 1997. TAGS's net assets as of November 1, 1997 consisted of the following: <TABLE> <CAPTION> (UNAUDITED) <S> <C> Current assets.............................................. $ 11,281 Noncurrent assets........................................... 3,568 Current liabilities......................................... (12,206) -------- $ 2,643 ======== </TABLE> (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR Starting in fiscal year 1996, the Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1996 and 1997 ended on February 3, 1996 and February 1, 1997, and included 368 and 365 days, respectively. Fiscal year 1995 ended on Tuesday, January 31, 1995, and included 364 days. INTERIM FINANCIAL STATEMENTS The combined financial statements as of and for the periods ended November 2, 1996 and November 1, 1997 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying combined financial statements reflect all adjustments (which are of normal recurring nature) necessary to present fairly the financial position and results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations for a full fiscal year. REVENUES Revenues include sales from retail operations and leased departments, net of returns. COST OF GOODS SOLD Cost of goods sold includes occupancy and buying expenses. Occupancy expenses include rent, utilities and real estate taxes. Buying expenses include payroll and travel expenses associated with the buying function. F-9 <PAGE> 95 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market as determined by the retail inventory method. FINANCE CHARGES Selling, general and administrative expenses in the combined statements of income are reduced by finance charge revenue arising from customer accounts receivable. Finance charge revenues were $35,769, $33,014 and $37,562 in fiscal years 1995, 1996 and 1997, respectively. PROPERTY AND EQUIPMENT, NET Property and equipment owned by the Company is stated at cost less accumulated depreciation. Property and equipment leased by the Company under capital leases is stated at an amount equal to the present value of the minimum lease payments less accumulated amortization. Depreciation and amortization are provided utilizing straight-line and various accelerated methods over the shorter of estimated asset lives or related lease terms. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement bases and the respective tax bases of the assets and liabilities and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. PRE-OPENING COSTS Store pre-opening costs are expensed as incurred. CASH EQUIVALENTS Cash equivalents include liquid investments with an original maturity of 90 days or less. ADVERTISING Advertising costs are expensed as incurred and amounted to $50,863, $55,118 and $54,977 in fiscal years 1995, 1996 and 1997, respectively. INTANGIBLE ASSETS, NET Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, generally 15 to 20 years. Leasehold intangibles, which represent the excess of fair value over the carrying value of leaseholds, are amortized on a straight-line basis over the remaining terms of the lease agreements. The carrying value of intangible assets is periodically reviewed by the Company's management to assess the recoverability of the assets. Accumulated amortization was $169, $838 and $2,670 at February 3, 1996, February 1, 1997 and November 1, 1997, respectively. F-10 <PAGE> 96 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) DERIVATIVE FINANCIAL INSTRUMENTS The Company utilizes various derivative financial instruments (interest rate swap agreements) to manage the interest rate risk associated with its borrowings. The counterparties to these instruments are major financial institutions. These agreements are used to reduce the potential impact of increases in interest rates on variable rate long-term debt. The differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to interest expense. The fair value of the swap agreements is not recognized in the combined financial statements. (4) ACCOUNTS RECEIVABLE, NET Customer receivables arise primarily under open-end revolving credit accounts used to finance purchases of merchandise from the Company. These accounts have various billing and payment structures, including varying minimum payment levels and finance charge rates. Installments of deferred payment accounts receivable maturing after one year are included in current assets in accordance with industry practice. The Company provides an allowance for doubtful accounts which is determined based on a number of factors, including the risk characteristics of the portfolio, historical charge-off patterns and management judgment. Accounts receivable, net consists of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> Customer receivables................................... $255,683 $326,907 $323,317 Other.................................................. 12,361 15,820 10,883 Less allowance for doubtful accounts................... (4,883) (6,813) (8,246) -------- -------- -------- Accounts receivable, net............................... $263,161 $335,914 $325,954 ======== ======== ======== </TABLE> Changes in the allowance for doubtful accounts are as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> <C> <C> Balance, beginning of period.......... $ 4,642 $ 4,770 $ 4,883 $ 4,883 $ 6,813 Charged to expense.................... 5,278 5,403 10,829 5,388 10,160 Acquired.............................. -- -- 801 801 -- Net uncollectible balances written off................................. (5,150) (5,290) (9,700) (5,392) (8,727) ------- ------- -------- ------- -------- Balance, end of period................ $ 4,770 $ 4,883 $ 6,813 $ 5,680 $ 8,246 ======= ======= ======== ======= ======== </TABLE> (5) INVESTMENTS IN UNCONSOLIDATED ENTITIES The Company's 25% ownership in Carolina Place Associates Partnership ("CPA") is recorded on the equity method. Equity in earnings of CPA for the year ended February 1, 1997 includes $3,072, net of income tax expense of $1,973, for the Company's portion of the gain recognized by CPA for the sale of its investment in a retail mall joint venture. The Company's 37% investment in Belk-Simpson is recorded on the equity method (see note 1). Equity in earnings of Belk-Simpson in fiscal years 1995, 1996 and 1997 were $984, $2,184 and $974, respectively. F-11 <PAGE> 97 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) Condensed combined financial information of the unconsolidated entities is as follows: <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Current assets.......................................... $32,053 $31,551 $ 31,034 Noncurrent assets....................................... 74,900 91,603 107,574 Current liabilities..................................... 20,343 20,337 22,885 Noncurrent liabilities.................................. 25,366 28,062 45,750 Shareholders' equity.................................... 61,244 74,755 69,973 Revenues................................................ 68,906 72,482 69,332 Net income.............................................. 3,033 7,537 3,445 </TABLE> Included in retained earnings of the combined financial statements at February 1, 1997 is undistributed earnings of approximately $7,287 from the unconsolidated entities. (6) INVESTMENT SECURITIES The Company classifies as held-to-maturity securities all debt securities that the Company has the ability and intent to hold to maturity. All equity securities and all other debt securities with a readily determinable market value are classified as available-for-sale securities with unrealized gains and losses, net of income taxes, reported as a component of shareholders' equity. Held-to-maturity securities consist of federal, state and local debt securities, and are reported at amortized cost. Available-for-sale securities are reported at fair values. Details of investments in held-to-maturity securities are as follows: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> Amortized cost......................................... $ 9,904 $12,130 $10,924 Gross unrealized gains................................. 678 494 489 Gross unrealized losses................................ -- (8) -- ------- ------- ------- Fair value............................................. $10,582 $12,616 $11,413 ======= ======= ======= </TABLE> At February 1, 1997, scheduled maturities of held-to-maturity securities are as follows: <TABLE> <CAPTION> FAIR VALUE AMORTIZED COST ---------- -------------- <S> <C> <C> One to five years........................................... $ 7,823 $ 7,602 Six to ten years............................................ 3,281 3,088 After ten years............................................. 1,512 1,440 ------- ------- $12,616 $12,130 ======= ======= </TABLE> F-12 <PAGE> 98 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) Details of investments in available-for-sale securities are as follows: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> Cost................................................... $ 8,096 $ 3,506 $ 4,160 Gross unrealized gains................................. 15,272 17,165 20,577 Gross unrealized losses................................ (62) (20) (25) ------- ------- ------- Fair value of securities............................... $23,306 $20,651 $24,712 ======= ======= ======= </TABLE> Realized gains and losses on sales of securities are recognized on a specific identification basis. Gross realized gains included in income in fiscal years 1995, 1996 and 1997 were $353, $3,486 and $1,966, respectively, and gross realized losses included in income were $344, $116 and $84, in fiscal years 1995, 1996 and 1997, respectively. (7) PROPERTY AND EQUIPMENT, NET Details of property and equipment are as follows: <TABLE> <CAPTION> ESTIMATED FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, LIVES 1996 1997 1997 --------- ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> <C> Land........................................... N/A $ 34,067 $ 20,340 $ 20,335 Buildings...................................... 30-50 437,427 395,443 416,732 Furniture, fixtures and equipment.............. 5-7 327,926 410,588 427,410 Construction in progress....................... N/A 8,559 12,146 15,241 --------- --------- --------- 807,979 838,517 879,718 Less accumulated depreciation and amortization................................. (377,603) (460,747) (482,975) --------- --------- --------- Property and equipment, net.................... $ 430,376 $ 377,770 $ 396,743 ========= ========= ========= </TABLE> (8) ACCRUED EXPENSES Accrued expenses are comprised of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> Salaries, wages and employee benefits.................. $26,992 $28,913 $22,806 Interest............................................... 1,759 5,277 5,371 Rent................................................... 4,352 4,524 3,987 Taxes, other than income............................... 3,652 3,781 7,277 Other.................................................. 11,075 17,214 27,572 ------- ------- ------- $47,830 $59,709 $67,013 ======= ======= ======= </TABLE> F-13 <PAGE> 99 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) (9) BORROWINGS Long-term debt, principally due to banks, and capital lease obligations consist of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> Mortgage notes payable........................... $ 43,263 $ 41,831 $ 40,857 Unsecured notes payable.......................... 122,914 163,053 190,984 Secured note payable............................. 3,087 2,612 -- Capital lease agreements through September 2011........................................... 9,177 8,514 11,312 -------- -------- -------- 178,441 216,010 243,153 Less current installments........................ (31,565) (31,638) (34,559) -------- -------- -------- Long-term debt and capital lease obligations, excluding current installments................. $146,876 $184,372 $208,594 ======== ======== ======== </TABLE> The mortgage notes are payable in installments and are due August 1997 through June 2003, at fixed rates ranging from 6.7% to 9.625% and at variable rates based on the secondary 90 day CD rate plus 50 basis points and LIBOR plus 80 basis points. The unsecured notes are payable in installments and are due through January 2007, at fixed rates ranging from 6.75% to 8% and variable rates based on such bank's 90 day CD rate (as defined by the Bank) plus 50 basis points and LIBOR plus from 50 to 175 basis points. The secured note is payable in installments through September 2000 at prime less 15 basis points. On November 1, 1997, the prime and LIBOR rates were 8.5% and 5.656%, respectively. Carrying values of land, buildings and personal property pledged as collateral for the mortgage notes and the secured note were approximately $50,800 at February 1, 1997. The annual maturities of long-term debt and capital lease obligations over the next five years as of February 1, 1997 are $31,638, $29,772, $28,648, $29,789 and $21,130, respectively. The Company's loan agreements place restrictions on mergers, consolidations, acquisitions, sales of assets, transactions with affiliates, leases, liens, dividend payments, debt and investments. They also contain certain financial requirements including current ratio, debt to equity, tangible net worth, cash flow coverage and fixed charge coverage ratios. The Belk Companies have obtained waivers for all out-of-compliance conditions. The Belk Companies have entered into interest rate swap agreements with various financial institutions to manage the exposure to changes in interest rates on its LIBOR based indebtedness. The amount of indebtedness covered by the interest rate swaps is $125 million at November 1, 1997. Subsequent to November 1, 1997, the Belk Companies entered into an additional $50 million in interest rate swaps. The amount of indebtedness covered by the interest rate swaps is $175 million for 1998, $150 million for 1999, $75 million for 2000 and 2001, and $50 million through 2007. The Company has short-term loan agreements at variable interest rates based on LIBOR plus from 50 to 180 basis points and at the fixed rate of 5.6%. The amounts outstanding under these agreements at February 3, 1996, February 1, 1997 and November 1, 1997 were $104,840, $139,552 and $90,330, respectively. At February 3, 1996, February 1, 1997 and November 1, 1997, the Company has unsecured line of credit agreements totaling $109,620, $213,870 and $177,000, respectively, with banks at varying interest rates based on LIBOR plus from 50 to 175 basis points. The amounts outstanding under these agreements at February 3, 1996, February 1, 1997 and November 1, 1997 were $11,487, $47,720, and $96,436, respectively. F-14 <PAGE> 100 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) (10) LEASES The Company leases certain of its stores, warehouse facilities and equipment. The majority of these leases will expire over the next 10 years. The leases usually contain renewal options and provide for payment by the lessee of real estate taxes and other expenses and, in certain instances, increased rentals based on percentages of sales. Future minimum lease payments under noncancelable leases as of February 1, 1997 were as follows: <TABLE> <CAPTION> FISCAL YEAR CAPITAL OPERATING ----------- ------- --------- <S> <C> <C> 1998........................................................ $ 1,178 $ 32,941 1999........................................................ 1,178 29,665 2000........................................................ 1,178 26,901 2001........................................................ 1,094 25,336 2002........................................................ 1,034 19,070 After 2002.................................................. 5,443 166,510 ------- -------- Total..................................................... 11,105 $300,423 ======== Less imputed interest....................................... (2,591) ------- Present value of minimum lease payments..................... 8,514 Less current portion........................................ (712) ------- $ 7,802 ======= </TABLE> Rental expense for all operating leases consists of the following: <TABLE> <CAPTION> FISCAL YEAR ENDED ----------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Buildings: Minimum rentals....................................... $24,060 $26,091 $29,982 Contingent rentals.................................... 4,702 4,316 4,562 Equipment............................................... 10,810 10,630 10,484 ------- ------- ------- Total rental expense.................................... $39,572 $41,037 $45,028 ======= ======= ======= </TABLE> Contingent rentals are determined on the basis of a percentage of sales in excess of stipulated minimums for certain store facilities. F-15 <PAGE> 101 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) (11) INCOME TAXES Federal and state income tax expense (benefit) from continuing operations was as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> <C> <C> Current: Federal................................ $27,900 $19,160 $31,427 $12,100 $ 9,339 State.................................. 6,559 4,565 7,200 2,884 2,145 ------- ------- ------- ------- ------- 34,459 23,725 38,627 14,984 11,484 Deferred: Federal................................ (4,633) (578) 91 (368) 22 State.................................. (1,365) (760) 84 (481) 22 ------- ------- ------- ------- ------- (5,998) (1,338) 175 (849) 44 ------- ------- ------- ------- ------- Income taxes............................. $28,461 $22,387 $38,802 $14,135 $11,528 ======= ======= ======= ======= ======= </TABLE> A reconciliation between income taxes from continuing operations computed using the effective income tax rate and the federal statutory income tax rate of 35% is as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED ----------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Income tax at the statutory federal rate................ 26$,030 $21,952 $34,739 State income taxes, net of federal income tax benefit... 3,376 2,473 4,735 Other................................................... (945) (2,038) (672) ------- ------- ------- Income taxes............................................ $28,461 $22,387 $38,802 ======= ======= ======= </TABLE> F-16 <PAGE> 102 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) Deferred taxes based upon differences between the financial statement and tax bases of assets and liabilities and available tax carryforwards consist of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> Deferred tax assets: Benefit plan costs........................................ $12,974 $ 14,520 Tax carryovers............................................ 6,408 6,963 Inventory capitalization.................................. 3,863 4,469 Allowance for doubtful accounts........................... 1,785 2,521 Capitalized leases........................................ 991 970 Other..................................................... 2,392 6,626 ------- -------- Gross deferred tax assets................................... 28,413 36,069 Less valuation allowance.................................... (2,035) (3,488) ------- -------- Net deferred tax assets..................................... 26,378 32,581 Deferred tax liabilities: Investment securities..................................... 5,219 5,930 Property and equipment.................................... 12,720 16,104 Prepaid pension costs..................................... 2,132 1,529 Provision for gain on disposal of discontinued operations............................................. -- 29,897 Other..................................................... 15 3,612 ------- -------- Gross deferred tax liabilities.............................. 20,086 57,072 ------- -------- Net deferred tax assets (liabilities)....................... $ 6,292 $(24,491) ======= ======== </TABLE> The change in the valuation allowance was a (decrease) increase of $(2,191) and $1,453 for February 3, 1996 and February 1, 1997, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the temporary differences becoming deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of February 1, 1997, the Company has net operating loss and contribution carryforwards for federal and state income tax purposes of approximately $3,983 and $697, respectively, which are available to offset future taxable income, if any. These carryforwards expire at various intervals through 2012. In addition, the Company has alternative minimum tax credit carryforwards of approximately $627 which are available to reduce future federal regular income taxes, if any, over an indefinite period. F-17 <PAGE> 103 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) (12) PENSION BENEFITS The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's compensation during the five years before retirement. The cost of pension benefits has been determined by the projected unit credit actuarial method in accordance with SFAS No. 87 "Employers' Accounting for Pensions". The following table sets forth the plan's funded status and amounts recognized in the Company's combined balance sheets at February 3, 1996 and February 1, 1997: <TABLE> <CAPTION> 1996 1997 -------- --------- <S> <C> <C> Actuarial present value of benefit obligations: Vested benefit obligation................................... $148,995 $ 156,651 ======== ========= Accumulated benefit obligation.............................. $152,430 $ 159,054 ======== ========= Projected benefit obligation................................ $171,363 $ 183,083 Plan assets at fair value................................... 270,063 289,482 -------- --------- Plan assets in excess of projected benefit obligation....... 98,700 106,399 Unrecognized net gain....................................... (82,756) (94,136) Unrecognized net asset at January 1, 1986 being recognized over 15 years............................................. (9,630) (7,664) -------- --------- Prepaid pension cost........................................ $ 6,314 $ 4,599 ======== ========= </TABLE> Net pension cost for fiscal years 1995, 1996 and 1997 includes the following components: <TABLE> <CAPTION> 1995 1996 1997 -------- -------- -------- <S> <C> <C> <C> Service cost............................................. $ 10,284 $ 11,118 $ 10,657 Interest cost on projected benefit obligation............ 12,453 13,196 13,202 Actual return on plan assets............................. (17,791) (18,021) (19,146) Net amortization and deferral............................ (3,333) (3,724) (2,998) -------- -------- -------- Net pension cost......................................... $ 1,613 $ 2,569 $ 1,715 ======== ======== ======== </TABLE> Assumptions used in accounting for the pension plan as of February 3, 1996 and February 1, 1997 were: <TABLE> <CAPTION> 1996 1997 ----- ----- <S> <C> <C> Discount rates.............................................. 7.25% 7.75% Rates of increase in compensation levels.................... 4.00% 4.00% Expected long-term rate of return on assets................. 8.50% 8.50% </TABLE> (13) OTHER POSTRETIREMENT BENEFIT PLANS The Company has a defined benefit health care plan that provides postretirement medical and life insurance benefits to certain retired full-time employees. The Company accounts for postretirement benefits by recognizing the cost of these benefits over an employee's estimated term of service with the Company. F-18 <PAGE> 104 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) The following table presents the plan's funded status reconciled with amounts recognized in the Company's combined balance sheets at February 3, 1996 and February 1, 1997: <TABLE> <CAPTION> 1996 1997 -------- -------- <S> <C> <C> Accumulated postretirement benefit obligation: Retirees.................................................... $ 16,446 $ 16,295 Active plan participants.................................... 11,210 11,448 -------- -------- Accumulated postretirement benefit obligation............... 27,656 27,743 Unrecognized net obligation at February 1, 1993 being recognized over 20 years.................................. (15,891) (14,957) Unrecognized net loss....................................... (7,592) (6,884) -------- -------- Accrued postretirement benefit cost......................... $ 4,173 $ 5,902 ======== ======== </TABLE> Net postretirement benefit cost for fiscal years 1995, 1996 and 1997 includes the following components: <TABLE> <CAPTION> 1995 1996 1997 ------ ------ ------ <S> <C> <C> <C> Service cost................................................ $ 323 $ 343 $ 455 Interest cost............................................... 1,773 1,968 2,044 Net amortization and deferral............................... 950 1,104 1,298 ------ ------ ------ Net postretirement benefit cost............................. $3,046 $3,415 $3,797 ====== ====== ====== </TABLE> For measurement purposes, a 10.0% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for fiscal year 1997; the rate was assumed to decrease gradually to 5.0% by fiscal year 2003 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of February 1, 1997 by $2,028 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended February 1, 1997 by $257. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.25% and 7.75% at February 3, 1996 and February 1, 1997, respectively. (14) OTHER EMPLOYEE BENEFITS The Belk Employee's Group Medical Plan provides medical benefits to substantially all employees of the Belk Companies. This Plan is "self-funded" for medical benefits through a 501(c)(9) Trust. The Group Life Insurance Plan provides life insurance to substantially all employees of the Belk Companies and is fully insured through a contract issued by an insurance company. Contributions by the Company under the Belk Employees' Group Medical Plan and the Group Life Insurance Plan amounted to approximately $12,747, $12,268 and $12,311 in fiscal years 1995, 1996 and 1997, respectively. The Belk Profit Sharing Plan, a contributory, defined contribution multi-employer plan, provides benefits for substantially all employees of the Belk Companies. The costs of the plan generally represent 10% of profits, as defined, and amounted to approximately $12,589, $10,848 and $14,003 in fiscal years 1995, 1996 and 1997, respectively. The Supplemental Executive Retirement Plan ("SERP") is a non-qualified defined benefit retirement plan which provides retirement and death benefits to certain qualified executives of the Company. Total SERP costs charged to operations were approximately $1,529, $1,987 and $1,002 in fiscal years 1995, 1996 and 1997, respectively. The effective discount rate used in determining the net periodic SERP cost is 8.5% for fiscal years F-19 <PAGE> 105 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) 1995 and 1996, and 7.25% for fiscal year 1997. Actuarial gains and losses are amortized over the average remaining service lives of the participants. Certain eligible employees participate in a non-qualified Deferred Compensation Plan ("DCP"). Participants in the plan have elected to defer a portion of their regular compensation subject to certain limitations prescribed by the DCP. The Company is required to pay interest on the employees' deferred compensation at various rates between 9% and 15%. Total interest expense related to this plan and charged to operations was approximately $2,425, $2,598 and $2,768 in fiscal years 1995, 1996 and 1997, respectively. (15) FAIR VALUE OF FINANCIAL INSTRUMENTS For financial instruments which are short-term in nature, such as cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and lines of credit, carrying values approximate fair values. The fair value of other financial instruments are as follows: <TABLE> <CAPTION> FEBRUARY 3, 1996 FEBRUARY 1, 1997 NOVEMBER 1, 1997 --------------------------- --------------------------- --------------------------- (UNAUDITED) CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE -------------- ---------- -------------- ---------- -------------- ---------- <S> <C> <C> <C> <C> <C> <C> Notes payable................. $104,840 $104,840 $139,552 $138,993 $ 90,330 $ 89,696 Long-term debt (excluding capitalized leases)......... 169,264 172,685 207,496 209,487 231,841 234,204 Interest rate swap agreements.................. -- -- -- -- -- (3,775) Investment securities......... 33,210 33,888 32,781 33,267 35,636 36,125 </TABLE> The fair value of the Company's fixed rate long-term debt and notes payable is estimated based on the current rates offered to the Company for debt of the same remaining maturities. The carrying values of the Company's variable rate long-term debt and notes payable are reasonable estimates of fair value. The fair value of interest rate swap agreements is the estimated amount that the Company would pay to terminate the swap agreement, taking into account current credit worthiness of the swap counterparties. (16) RELATED PARTY TRANSACTIONS The Company owns a 37% interest in Belk-Simpson, an affiliated retail company. The Company has outstanding receivable balances from Belk-Simpson of $15,040, $10,541 and $8,028 at February 3, 1996, February 1, 1997 and November 1, 1997, respectively, which are included in prepaid expenses and other current assets in the combined balance sheets. The Company also has a loan payable to Belk-Simpson which is included in deferred compensation and other non-current liabilities in the combined balance sheets. The outstanding balances on this loan are $5,626, $7,851 and $7,851 at February 3, 1996, February 1, 1997 and November 1, 1997, respectively. Various officers and directors of the Company have outstanding loans with the Company at a fixed rate of 7.5%. The balances of these loans are $2,929 and $2,226 as of February 3, 1996 and February 1, 1997, respectively. Various officers, directors and employees of the Company have demand deposits with the Company. The deposits are invested in highly liquid securities and other investments and earn interest at the 30 day secondary CD rate less 50 basis points. The aggregate amount of demand deposits are $5,059, $4,065 and $5,669 at February 3, 1996, February 1, 1997 and November 1, 1997, respectively. (17) SUBSEQUENT EVENT On November 14, 1997, the Company entered into an agreement with two banks to consolidate its seasonal borrowings. The agreement provides for a one year seasonal line of credit of $164,000. The line will be reduced to $128,500 on January 31, 1998 and will expire on September 30, 1998. F-20 <PAGE> 106 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) (18) THE BELK COMPANIES The following related entities (referred to in note 1) are included in the Belk Companies: Belk-Simpson Company of Paragould, Arkansas, Inc., Belk Department Store of Stuttgart, Ark., Inc., Belk-Lindsey Stores, Inc., Belk's Department Store of Albany, Georgia, Belk of Americus, Ga., Inc., Belk of Athens, Ga., Inc., Belk-Simpson Co., of Bainbridge, Ga., Inc., Belk of Canton, Ga., Inc., Belk-Rhodes Company, of Carrollton, Ga., Belk's Department Store of Cartersville, Georgia, Incorporated, Belk of Cornelia, Ga., Inc., Belk of Covington, Ga., Inc., Belk of Dalton, Ga., Inc., Belk-Matthews Company of Dublin, Georgia, Belk of Hartwell, Ga., Inc., Belk of LaGrange, Ga., Inc., Belk of Lawrenceville, Ga., Inc., Belk-Matthews Company of Macon, Georgia, Belk-Matthews Company of Milledgeville, Ga., Inc., Belk of Monroe, Ga., Inc., Belk of Newnan, Ga., Inc., Belk-Rhodes Company, (Rome, Georgia), Belk of Statesboro, Ga., Inc., Belk of Thomaston, Ga., Inc., Belk of Toccoa, Ga., Inc., Belk-Matthews Company, Vidalia, Georgia, Inc., Belk of Washington, Ga., Inc., Belk of Waycross, Ga., Inc., Belk-Simpson Company of Corbin, Kentucky, Incorporated, Belk-Simpson Company of Harlan, Kentucky, Incorporated, Belk of Miss., Inc., Belk Department Store of Ahoskie, N.C., Inc., Belk's Department Store of Albemarle, North Carolina, Incorporated, Belk of Asheboro, N.C., Inc., Belk's Department Store of Asheville, North Carolina, Incorporated, Belk-Matthews Company, Belk's Department Store of Boone, North Carolina, Incorporated, Belk's Department Store of Brevard, N.C. Incorporated, Belk-Beck Company of Burlington, North Carolina, Inc., Belk Brothers Company, Belk Enterprises, Inc., Belk-Matthews Company of Cherryville, N.C., Incorporated, Belk Department Store of Clinton, N.C., Inc., Belk's Department Store of Dunn, North Carolina, Incorporated, Belk Department Store of Eden, N.C., Inc., Belk Department Store of Elkin, N.C., Inc., Belk Department Store of Forest City, N.C., Inc., Hudson-Belk Co. of Fuquay-Varina, N.C., Inc., Matthews-Belk Company, Belk Department Store of Greenville, N.C., Inc., Belk-Simpson Company of Hendersonville, N.C., Incorporated, Belk Department Store of Hickory, N.C., Inc., Belk-Beck Co. of High Point, N.C., Inc., Belk's Department Store of Jacksonville, N.C., Inc., Belk's Department Store of Lenoir, North Carolina, Incorporated, Belk Department Store of Lincolnton, N.C., Inc., Belk Brothers of Monroe, North Carolina, Incorporated, Belk's Department Store of Morehead City, N.C., Inc., Belk's Department Store of Mount Airy, North Carolina, Incorporated, Belk's Department Store of New Bern, N.C., Incorporated, Hudson-Belk Company, Belk Department Store of Reidsville, N.C., Inc., Belk's Department Store of Rockingham, N.C., Incorporated, Belk-Harry Company -- Salisbury, N.C., Belk Department Store of Shelby, N.C., Inc., Belk of Siler City, N.C., Inc., Belk Department Store of Waynesville, N.C., Inc., Belk Department Store of Wilkesboro, N.C., Inc., Belk's Department Store, Incorporated of Aiken, South Carolina, Gallant-Belk Company, Belk's Department Store of Batesburg, S.C., Inc., Belk-Simpson Company, Incorporated of Beaufort, South Carolina, Belk's Department Store of Camden, S.C., Incorporated, Belk Department Store of Charleston, S.C., Inc., Belk's Department Store of Conway, S.C., Incorporated, Belk's Department Store of Florence, S.C., Incorporated, Belk's Department Store of Gaffney, South Carolina, Incorporated, Belk of Georgetown, S.C., Inc., Belk Department Store of Greenwood, S.C., Inc., Belk's Department Store of Hartsville, S.C., Incorporated, Belk's Department Store, Incorporated, of Lake City, South Carolina, Belk's Department Store of Lancaster, S.C., Inc., Belk's Department Store of Laurens, South Carolina, Incorporated, Belk of Orangeburg, S.C., Inc., Belk of Seneca, S.C., Inc., Belk of Spartanburg, S.C., Inc., Belk of Union, S.C., Inc., Belk of Walterboro, S.C., Inc., Belk's Department Store of Winnsboro, S.C., Incorporated, Parks-Belk Company of Clarksville, Tennessee, Belk Department Store of Greenville, Texas, Inc., Belk's Department Store of Paris, Texas, Inc., Parks-Belk Company, Incorporated, Belk of Danville, Va., Inc., Belk of Lynchburg, Va., Inc., Belk Stores of Virginia, Inc., Belk of Roanoke, Va., Inc., Belk of South Boston, Va., Inc., Belk of Dawson, Ga., Inc., Belk of Elberton, Ga., Inc., Belk of Thomson, Ga., Inc., Belk Department Store of Edenton, N.C., Inc., Belk of Thomasville, N.C., Inc., Belk's Department Store of Chesterfield, S.C., Incorporated, Belk's Department Store of Columbia, South Carolina, Incorporated, Belk Finance Company, Belk-Simpson Realty Company, Belk of Lawrenceville, Va., Inc., Belk Realty of Radford, F-21 <PAGE> 107 THE BELK COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) Va., Inc., Belk Realty of Staunton, Va., Inc., Belk Outlet Center, Inc., Belk of St. Augustine, Fla., Inc., Belk-Simpson Company of Somerset, Kentucky, Incorporated, Belk Stores of Maryland, Inc., Belk Charlotte, Inc., Belk Department Store of Greensboro, N.C., Inc., Belk of Roanoke Rapids, N.C., Inc., Belk Department Store of North Augusta, S.C., Inc., Belk's Department Store of Rock Hill, S.C., Incorporated, Belk Department Store of Chattanooga, Tennessee, Incorporated, Parks-Belk Company of Wise, Virginia, Incorporated, Belk of West Virginia, Inc., Belk Brothers Properties, Inc., Belk Investment Company, Belk of Virginia, Inc., Belk of Delaware, Inc., Archdale Advertising Agency, Inc., Belk Leasing Company, Belk Stores Services, Inc., United Electronic Services, Inc., Belk Stores Mutual Insurance Company, The Belk Center, Inc., Belk International, Inc., and TAGS Stores, LLC. F-22 <PAGE> 108 ANNEX A THE BELK COMPANIES <TABLE> <CAPTION> REQUIRED SHAREHOLDER BELK COMPANY VOTE - ------------ ----------- <S> <C> Belk-Simpson Company of Paragould, Arkansas, Inc............ Two-thirds Belk Department Store of Stuttgart, Ark., Inc............... Two-thirds Belk-Lindsey Stores, Inc.................................... Majority Belk's Department Store of Albany, Georgia.................. Majority Belk of Americus, Ga., Inc.................................. Majority Belk of Athens, Ga., Inc.................................... Majority Belk-Simpson Co., of Bainbridge, Ga., Inc................... Majority Belk of Canton, Ga., Inc.................................... Majority Belk-Rhodes Company, of Carrollton, Ga...................... Majority Belk's Department Store of Cartersville, Georgia, Incorporated.............................................. Majority Belk of Cornelia, Ga., Inc.................................. Majority Belk of Covington, Ga., Inc................................. Majority Belk of Dalton, Ga., Inc.................................... Majority Belk-Matthews Company of Dublin, Georgia.................... Majority Belk of Hartwell, Ga., Inc.................................. Majority Belk of LaGrange, Ga., Inc.................................. Majority Belk of Lawrenceville, Ga., Inc............................. Majority Belk-Matthews Company of Macon, Georgia..................... Majority Belk-Matthews Company of Milledgeville, Ga., Inc............ Majority Belk of Monroe, Ga., Inc.................................... Majority Belk of Newnan, Ga., Inc.................................... Majority Belk-Rhodes Company, (Rome, Georgia)........................ Majority Belk of Statesboro, Ga., Inc................................ Majority Belk of Thomaston, Ga., Inc................................. Majority Belk of Toccoa, Ga., Inc.................................... Majority Belk-Matthews Company, Vidalia, Georgia, Inc................ Majority Belk of Washington, Ga., Inc................................ Majority Belk of Waycross, Ga., Inc.................................. Majority Belk-Simpson Company of Corbin, Kentucky, Incorporated...... Majority Belk-Simpson Company of Harlan, Kentucky, Incorporated...... Majority Belk of Miss., Inc.......................................... Majority Belk Department Store of Ahoskie, N.C., Inc................. Majority Belk's Department Store of Albemarle, North Carolina, Incorporated.............................................. Majority Belk of Asheboro, N.C., Inc................................. Majority Belk's Department Store of Asheville, North Carolina, Incorporated.............................................. Majority Belk-Matthews Company....................................... Majority Belk's Department Store of Boone, North Carolina, Incorporated.............................................. Majority Belk's Department Store of Brevard, N.C., Incorporated...... Majority Belk-Beck Company of Burlington, North Carolina, Inc........ Majority Belk Brothers Company....................................... Majority Belk Enterprises, Inc....................................... Majority Belk-Matthews Company of Cherryville, N.C., Incorporated.... Majority Belk Department Store of Clinton, N.C., Inc................. Majority Belk's Department Store of Dunn, North Carolina, Incorporated.............................................. Majority Belk Department Store of Eden, N.C., Inc.................... Majority Belk Department Store of Elkin, N.C., Inc................... Majority Belk Department Store of Forest City, N.C., Inc............. Majority </TABLE> A-1 <PAGE> 109 <TABLE> <CAPTION> REQUIRED SHAREHOLDER BELK COMPANY VOTE - ------------ ----------- <S> <C> Hudson-Belk Co. of Fuquay-Varina, N.C., Inc................. Majority Matthews-Belk Company....................................... Majority Belk Department Store of Greenville, N.C., Inc.............. Majority Belk-Simpson Company of Hendersonville, N.C., Incorporated.............................................. Majority Belk Department Store of Hickory, N.C., Inc................. Majority Belk-Beck Co. of High Point, N.C., Inc...................... Majority Belk's Department Store of Jacksonville, N.C., Inc.......... Majority Belk's Department Store of Lenoir, North Carolina, Incorporated.............................................. Majority Belk Department Store of Lincolnton, N.C., Inc.............. Majority Belk Brothers of Monroe, North Carolina, Incorporated....... Majority Belk's Department Store of Morehead City, N.C., Inc......... Majority Belk's Department Store of Mount Airy, North Carolina, Incorporated.............................................. Majority Belk's Department Store of New Bern, N.C., Incorporated..... Majority Hudson-Belk Company......................................... Majority Belk Department Store of Reidsville, N.C., Inc.............. Majority Belk's Department Store of Rockingham, N.C., Incorporated... Majority Belk-Harry Company -- Salisbury, N.C........................ Majority Belk Department Store of Shelby, N.C., Inc.................. Majority Belk of Siler City, N.C., Inc............................... Majority Belk Department Store of Waynesville, N.C., Inc............. Majority Belk Department Store of Wilkesboro, N.C., Inc.............. Majority Belk's Department Store, Incorporated of Aiken, South Carolina.................................................. Two-thirds Gallant-Belk Company........................................ Two-thirds Belk's Department Store of Batesburg, S.C., Inc............. Two-thirds Belk-Simpson Company, Incorporated of Beaufort, South Carolina.................................................. Two-thirds Belk's Department Store of Camden, S.C., Incorporated....... Two-thirds Belk Department Store of Charleston, S.C., Inc.............. Two-thirds Belk's Department Store of Conway, S.C., Incorporated....... Two-thirds Belk's Department Store of Florence, S.C., Incorporated..... Two-thirds Belk's Department Store of Gaffney, South Carolina, Incorporated.............................................. Two-thirds Belk of Georgetown, S.C., Inc............................... Two-thirds Belk-Simpson Company, Greenville, South Carolina............ Two-thirds Belk Department Store of Greenwood, S.C., Inc............... Two-thirds Belk's Department Store of Hartsville, S.C., Incorporated... Two-thirds Belk's Department Store, Incorporated, of Lake City, South Carolina.................................................. Two-thirds Belk's Department Store of Lancaster, S.C., Inc............. Two-thirds Belk's Department Store of Laurens, South Carolina, Incorporated.............................................. Two-thirds Belk of Orangeburg, S.C., Inc............................... Two-thirds Belk of Seneca, S.C., Inc................................... Two-thirds Belk of Spartanburg, S.C., Inc.............................. Two-thirds Belk of Union, S.C., Inc.................................... Two-thirds Belk of Walterboro, S.C., Inc............................... Two-thirds Belk's Department Store of Winnsboro, S.C., Incorporated.... Two-thirds Parks-Belk Company of Clarksville, Tennessee................ Majority Belk Department Store of Greenville, Texas, Inc............. Two-thirds Belk's Department Store of Paris, Texas, Inc................ Two-thirds Parks-Belk Company, Incorporated............................ Two-thirds Belk of Danville, Va., Inc.................................. Two-thirds Belk of Lynchburg, Va., Inc................................. Two-thirds Belk Stores of Virginia, Inc................................ Two-thirds </TABLE> A-2 <PAGE> 110 <TABLE> <CAPTION> REQUIRED SHAREHOLDER BELK COMPANY VOTE - ------------ ----------- <S> <C> Belk of Roanoke, Va., Inc................................... Two-thirds Belk of South Boston, Va., Inc.............................. Two-thirds Belk of Dawson, Ga., Inc.................................... Majority Belk of Elberton, Ga., Inc.................................. Majority Belk of Thomson, Ga., Inc................................... Majority Belk Department Store of Edenton, N.C., Inc................. Majority Belk of Thomasville, N.C., Inc.............................. Majority Belk's Department Store of Chesterfield, S.C., Incorporated.............................................. Two-thirds Belk's Department Store of Columbia, South Carolina, Incorporated.............................................. Two-thirds Belk Finance Company........................................ Majority Belk-Simpson Realty Company................................. Two-thirds Belk of Lawrenceville, Va., Inc............................. Two-thirds Belk Realty of Radford, Va., Inc............................ Two-thirds Belk Realty of Staunton, Va., Inc........................... Two-thirds Belk Outlet Center, Inc..................................... Two-thirds </TABLE> THE SURVIVING BELK SUBSIDIARIES Belk of St. Augustine, Fla., Inc. Belk-Simpson Company of Somerset, Kentucky, Incorporated Belk Stores of Maryland, Inc. Belk Charlotte, Inc. Belk Department Store of Greensboro, N.C., Inc. Belk of Roanoke Rapids, N.C., Inc. Belk Department Store of North Augusta, S.C., Inc. Belk's Department Store of Rock Hill, S.C., Incorporated Belk Department Store of Chattanooga, Tennessee, Incorporated Parks-Belk Company of Wise, Virginia, Incorporated Belk of West Virginia, Inc. Belk Brothers Properties, Inc. Belk Investment Company Belk of Virginia, Inc. Belk of Delaware, Inc. *Archdale Advertising Agency, Inc. *Belk Leasing Company *Belk Stores Services, Inc. *United Electronic Services, Inc. *Belk Stores Mutual Insurance Company *The Belk Center, Inc. *Belk International, Inc. Belk Funding, LLC TAGS Stores, LLC - --------------- * These Surviving Belk Subsidiaries are not expected to be merged into New Belk following the consummation of the Reorganization. A-3 <PAGE> 111 ANNEX B PLAN AND AGREEMENT OF REORGANIZATION BY AND AMONG BELK, INC., BELK ACQUISITION CO. AND THE SEPARATE BELK COMPANIES LISTED ON EXHIBIT A Dated as of November 25, 1997 B-1 <PAGE> 112 TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> <C> ARTICLE 1 THE REORGANIZATION......................................... B-4 1.1 The Reorganization.......................................... B-4 1.2 Conversion of Shares........................................ B-5 1.3 Exchange of Certificates.................................... B-6 1.4 Dividends................................................... B-7 1.5 Escheat Laws................................................ B-7 1.6 Closing of Company Transfer Books........................... B-7 ARTICLE 2 CLOSING.................................................... B-7 2.1 Time and Place of Closing................................... B-7 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EACH BELK COMPANY........ B-7 3.1 Organization, Good Standing and Power....................... B-7 3.2 Authorization; Enforceability............................... B-8 3.3 Investigation by Company.................................... B-8 3.4 Information in Disclosure Documents......................... B-8 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF NEW BELK................. B-8 4.1 Organization, Good Standing and Power....................... B-8 4.2 Capitalization.............................................. B-9 4.3 Authority; Enforceability................................... B-9 4.4 Investigation by New Belk................................... B-9 ARTICLE 5 CONDUCT OF BUSINESS PENDING THE EFFECTIVE TIME; CERTAIN COVENANTS.................................................. B-10 5.1 Conduct of Business Pending Merger.......................... B-10 5.2 Belk-Simpson Reorganization................................. B-10 5.3 Takeover Statutes........................................... B-11 5.4 Consents.................................................... B-11 5.5 Further Assurances.......................................... B-11 5.6 Notice; Efforts to Remedy................................... B-11 5.7 Registration Statement; Stockholder Approvals............... B-11 5.8 Expenses.................................................... B-12 5.9 Indemnification of Officers and Directors................... B-12 5.10 Tax Treatment............................................... B-12 5.11 Confidentiality............................................. B-12 5.12 No Solicitation of Transactions............................. B-12 5.13 Dividends................................................... B-13 ARTICLE 6 CONDITIONS PRECEDENT TO MERGER............................. B-13 6.1 Conditions to Each Party's Obligations...................... B-13 6.2 Conditions to Obligations of the Belk Companies............. B-13 6.3 Conditions to Obligations of New Belk and New Belk Sub...... B-14 6.4 Conditions to Obligations of Belk-Simpson................... B-14 ARTICLE 7 TERMINATION AND ABANDONMENT OF THE REORGANIZATION.......... B-14 7.1 Termination................................................. B-14 7.2 Effect of Termination and Abandonment....................... B-15 ARTICLE 8 MISCELLANEOUS.............................................. B-15 8.1 Waiver and Amendment........................................ B-15 Non-Survival of Representations, Warranties and 8.2 Agreements.................................................. B-16 8.3 Notices..................................................... B-16 8.4 Descriptive Headings; Interpretation........................ B-16 8.5 Counterparts................................................ B-16 </TABLE> B-2 <PAGE> 113 <TABLE> <CAPTION> PAGE ---- <S> <C> <C> 8.6 Entire Agreement............................................ B-16 8.7 Governing Law............................................... B-17 8.8 Severability................................................ B-17 8.9 Enforcement of Agreement.................................... B-17 8.10 Assignment.................................................. B-17 8.11 Limited Liability........................................... B-17 8.12 Consent to Jurisdiction; Service of Process................. B-17 </TABLE> B-3 <PAGE> 114 PLAN AND AGREEMENT OF REORGANIZATION THIS PLAN AND AGREEMENT OF REORGANIZATION (this "Agreement"), dated as of November 25, 1997, by and among BELK, INC., a Delaware corporation ("New Belk"), BELK ACQUISITION CO., a South Carolina corporation ("New Belk Sub"), and each of the Belk companies identified on Exhibit A attached hereto (each a "Belk Company" and, collectively, the "Belk Companies"). WHEREAS, the respective Boards of Directors of each Belk Company, New Belk and New Belk Sub have approved and declared advisable the merger of (a) each Belk Company (other than Belk-Simpson Company, Greenville, South Carolina ("Belk-Simpson)) with and into New Belk and (b) the merger of New Belk Sub, a wholly owned subsidiary of New Belk, with and into Belk-Simpson (the "Belk-Simpson Merger") (for each Belk Company other than Belk-Simpson, the "Merger," and collectively, the "Mergers" or the "Reorganization") pursuant to: (i) the applicable provisions of the Delaware General Corporation Law (the "DGCL"); (ii) the applicable provisions of the state laws identified on Exhibit A attached hereto (for each Belk Company, the "Applicable State Corporate Law," and collectively, the "Applicable State Corporate Laws") pursuant to which each such Belk Company has been organized; and (iii) the terms and provisions of this Agreement and the transactions contemplated hereby; WHEREAS, the respective Boards of Directors of New Belk, New Belk Sub and each Belk Company have determined that the Merger is in furtherance of and consistent with their respective long-term business strategies and is fair to and in the best interests of their respective stockholders; WHEREAS, for federal income tax purposes, it is intended that each Merger other than the Belk-Simpson Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the Belk-Simpson Merger shall qualify as an exchange under Section 351(a) of the Code, and this Agreement is intended to be and is adopted as a plan of reorganization; and WHEREAS, the Reorganization described herein is subject to the approval of the stockholders of each Belk Company and applicable state and federal authorities, and satisfaction of certain other conditions described in this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements herein contained, the parties agree as follows: ARTICLE 1 THE REORGANIZATION 1.1 THE REORGANIZATION (a) Upon the terms and subject to the conditions of this Agreement, at the Effective Time and in accordance with the provisions of this Agreement, the DGCL and the Applicable State Corporate Laws, each Belk Company (other than Belk-Simpson) shall be merged with and into New Belk, which shall be the surviving corporation in each Merger, and the separate corporate existence of each such Belk Company shall cease. Subject to the provisions of this Agreement, a certificate of merger (the "Delaware Certificate of Merger") shall be duly prepared, executed and acknowledged by New Belk and thereafter delivered to the Secretary of State of the State of Delaware for filing as provided in the DGCL on the Closing Date (as defined in Section 2.1). Subject to the provisions of this Agreement, a certificate of merger or articles of merger, as provided in the Applicable State Corporate Laws for each such Belk Company (other than Belk-Simpson) shall be duly prepared, executed and acknowledged by each such Belk Company and thereafter delivered to the Secretary of State of the state set forth next to the name of each such Belk Company on Exhibit A (for each such Belk Company, the "Belk Company Certificate of Merger" and collectively, the "Belk Company Certificates of Merger"). Each Merger, and the Reorganization as a whole, shall become effective (the "Effective Time") immediately upon the last to be filed of (i) the Delaware Certificate of Merger with the B-4 <PAGE> 115 Secretary of State of the State of Delaware, (ii) the Belk Company Certificate of Merger relating to the Merger of such Belk Company, and (iii) the Belk-Simpson Certificate of Merger (defined below). (b) From and after the Effective Time, the Merger of each Belk Company (other than Belk-Simpson) shall have all the effects set forth in the DGCL and the Applicable State Corporate Laws. Without limiting the generality of the foregoing, and subject thereto, by virtue of each such Merger and in accordance with the DGCL and the Applicable State Corporate Laws, (i) all of the properties, rights, privileges, powers and franchises of each Belk Company (other than Belk-Simpson) shall vest in New Belk, (ii) all of the debts, liabilities and duties of each Belk Company (other than Belk-Simpson) shall become the debts, liabilities and duties of New Belk (other than debts, liabilities and duties of any such Belk Company owed to any other Belk Company), and (iii) all of the debts, liabilities and duties of each Belk Company (other than Belk-Simpson) owed to any other Belk Company shall be canceled and shall cease to exist. (c) The Certificate of Incorporation of New Belk in effect immediately prior to the Effective Time shall be amended and restated substantially in the form attached hereto as Exhibit B (the "Amended and Restated Certificate of Incorporation of New Belk") and thereafter shall remain the Certificate of Incorporation of New Belk until thereafter amended in accordance with the provisions thereof and the DGCL. (d) The Bylaws of New Belk in effect immediately prior to the Effective Time shall be amended and restated substantially in the form attached hereto as Exhibit C and thereafter shall remain the Bylaws of New Belk until altered, amended or repealed as provided therein, in the Certificate of Incorporation of New Belk and the DGCL. (e) The directors of New Belk at the Effective Time shall be the persons whose names are set forth on Exhibit D hereto, in each case until their respective successors are duly elected and qualified. (f) Upon the terms and subject to the conditions of this Agreement, at the Effective Time and in accordance with the provisions of this Agreement and the South Carolina Business Corporation Act of 1988 (the "SCBA"), New Belk Sub shall be merged with and into Belk-Simpson, which shall be the surviving corporation in such merger, and the separate corporate existence of New Belk Sub shall cease. Subject to the provisions of this Agreement, a certificate of merger (the "Belk-Simpson Certificate of Merger") shall be duly prepared, executed and acknowledged by Belk-Simpson and thereafter delivered to the Secretary of State of the State of South Carolina for filing as provided in the SCBA on the Closing Date. From and after the Effective Time, the Belk-Simpson Merger shall have all the effects set forth in the SCBA. Without limiting the generality of the foregoing, and subject thereto, by virtue of the Belk-Simpson Merger and in accordance with the SCBA , (i) all of the properties, rights, privileges, powers and franchises of New Belk Sub shall vest in Belk-Simpson and (ii) all of the debts, liabilities and duties of New Belk Sub shall become the debts, liabilities and duties of Belk-Simpson. (g) The Certificate of Incorporation of Belk-Simpson in effect immediately prior to the Effective Time shall remain the Certificate of Incorporation of Belk-Simpson until thereafter amended in accordance with the provisions thereof and the SCBA. (h) The Bylaws of Belk-Simpson in effect immediately prior to the Effective Time shall remain the Bylaws of Belk-Simpson until altered, amended or repealed as provided therein, in the Certificate of Incorporation of Belk-Simpson and the SCBA. 1.2 Conversion of Shares. As of the Effective Time, by virtue of the Mergers (including the Belk-Simpson Merger) and without any action on the part of any holder thereof: (a) Subject to Section 1.2(c), each share of common stock of each Belk Company and each share of any other capital stock of such Belk Company that is owned (i) by such Belk Company as treasury stock, (ii) by New Belk, or (iii) by another Belk Company other than Belk-Simpson shall be canceled and retired and shall cease to exist and no stock of New Belk or other consideration shall be delivered in exchange therefor. (b) Subject to Section 1.3(b), each outstanding share of common stock of each Belk Company that is issued and outstanding and owned by shareholders other than Belk-Simpson immediately prior to the B-5 <PAGE> 116 Effective Time (other than shares to be canceled in accordance with Section 1.2(a)) shall be converted into a right to receive a number (the "Exchange Ratio") of shares, or fraction thereof, of Class A common stock, $.01 par value per share, of New Belk ("New Belk Class A Common Stock") as specified in Exhibit A. All such shares of common stock of each Belk Company other than Belk-Simpson, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist. Shares of common stock of Belk-Simpson, when converted into the right to receive shares of New Belk Class A Common Stock, shall not be canceled, retired or otherwise cease to exist; rather, such shares will be transferred, by operation of the Belk-Simpson Merger, to New Belk. Each outstanding share of common stock of Belk Department Store of Camden, S.C., Incorporated, Parks-Belk Company of Clarksville, Tennessee, Belk-Simpson Realty Company and TAGS Stores, LLC that is issued and outstanding and that is owned by Belk-Simpson immediately prior to the Effective Time shall be converted into the right to receive 44,890.6, 120,219.8, 1,209.4 and 79,854.2 shares of New Belk Class A Common Stock, respectively. Each certificate previously representing shares of common stock of any Belk Company (a "Certificate") shall thereafter represent the right to receive that number of shares of New Belk Class A Common Stock into which such shares of each Belk Company common stock have been converted. Certificates previously representing shares of each Belk Company's common stock shall be exchanged for certificates representing whole shares of New Belk Class A Common Stock issued in consideration therefor upon the surrender of such Certificates in accordance with Section 1.3, without interest. After adding all fractions of shares of New Belk Class A Common Stock received by a shareholder of any Belk Company in each Merger, any fraction of a share of New Belk Class A Common Stock remaining shall be rounded upward to a whole share of New Belk Class A Common Stock. (c) If, after the date hereof and prior to the Effective Time, New Belk shall have declared a stock split (including a reverse split) of New Belk Class A Common Stock or a dividend payable in New Belk Class A Common Stock or any other similar transaction, then the Exchange Ratio shall be appropriately adjusted to reflect such stock split or dividend or similar transaction. 1.3 Exchange of Certificates. (a) As soon as practicable after the Effective Time, New Belk shall mail to each holder of record of common stock of any of the Belk Companies (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to New Belk accompanied by a properly executed letter of transmittal and shall be in such form and have such other provisions as New Belk may reasonably specify), and (ii) instructions for use in effecting the surrender of such Certificates in exchange for certificates representing shares of New Belk Class A Common Stock (the "New Belk Certificates") issuable pursuant to Section 1.2 in exchange for outstanding shares of common stock of each Belk Company. Upon the surrender to New Belk of one or more Certificates representing such shares of Belk Company common stock for cancellation or exchange, together with such letter of transmittal, duly executed, the holder will be entitled to receive New Belk Certificates representing that number of whole shares of New Belk Class A Common Stock to be issued in respect of the aggregate number of such shares of such Belk Company's common stock previously represented by the Certificates surrendered based upon the Exchange Ratio (or, in the case of Belk-Simpson, based upon the number of shares of New Belk Class A Common Stock to which it is entitled pursuant to Section 1.2(b)). (b) No certificate or scrip representing fractional shares of New Belk Class A Common Stock shall be issued upon the surrender for exchange of Certificates. All fractional shares of New Belk Class A Common Stock that a holder of common stock of a Belk Company would otherwise be entitled to receive as a result of any of the Mergers or the Belk-Simpson Merger shall be aggregated as provided in Section 1.2(b) hereof. (c) If a New Belk Certificate is to be sent to a person other than the person in whose name the Certificates for shares of Belk Company common stock surrendered for exchange are registered, it shall be a condition of the exchange that the person requesting such exchange shall pay to New Belk any transfer or other taxes required by reason of the delivery of such New Belk Certificate to a person other than the registered holder of the Certificate surrendered, or shall establish to the satisfaction of New Belk that such tax has been paid or is not applicable. B-6 <PAGE> 117 (d) The shares of New Belk Class A Common Stock issued upon the surrender of Certificates in accordance with the terms hereof shall be deemed to have been paid and issued in full satisfaction of all rights pertaining to such shares of common stock of a Belk Company. 1.4 Dividends. No dividends or other distributions that are declared or made after the Effective Time with respect to New Belk Class A Common Stock payable to holders of record thereof after the Effective Time shall be paid to any holder of common stock in any Belk Company entitled to receive New Belk Certificates representing New Belk Class A Common Stock until such stockholder has properly surrendered such stockholder's Certificates. Upon such surrender, there shall be paid to the stockholder in whose name the New Belk Certificates shall be issued any dividends which shall have become payable with respect to such New Belk Class A Common Stock between the Effective Time and the time of such surrender, without interest. After such surrender, there shall also be paid to the stockholder in whose name the New Belk Certificates shall be issued any dividend on such New Belk Class A Common Stock that shall have a record date subsequent to the Effective Time and prior to such surrender and a payment date after such surrender; provided that such dividend payments shall be made on such payment dates. In no event shall the stockholders entitled to receive such dividends be entitled to receive interest on such dividends. 1.5 Escheat Laws. Notwithstanding any other provision of this Article 1, neither New Belk, the Belk Companies or any other party hereto shall be liable to any holder of Belk Company common stock for any New Belk Class A Common Stock, or dividends or distributions thereon, delivered to a public official pursuant to any applicable abandoned property, escheat or similar laws. 1.6 Closing of Company Transfer Books. At the Effective Time, the stock transfer books of each Belk Company shall be closed and no transfer of any of the common stock of any of the Belk Companies shall thereafter be made. If, after the Effective Time, Certificates are presented to New Belk, they shall, when accompanied by proper documentation, be exchanged for New Belk Class A Common Stock in the manner provided in this Article 1. ARTICLE 2 CLOSING 2.1 Time and Place of Closing. Unless otherwise mutually agreed upon in writing by New Belk and the Belk Companies, the closing of the Reorganization (the "Closing") will be held at 10:00 a.m., local time, on the later of (i) April 1, 1998, and (ii) the second business day following the date that all of the conditions precedent specified in this Agreement have been (or will be at the Closing) satisfied or waived by the party or parties permitted to do so (such date being referred to hereinafter as the "Closing Date"). The place of Closing shall be at the offices of Belk Stores Services, Inc. at 2801 West Tyvola Road, Charlotte, North Carolina 28217, or at such other place as may be agreed between New Belk and the Belk Companies. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EACH BELK COMPANY Each Belk Company hereby represents and warrants to New Belk as follows: 3.1 Organization, Good Standing and Power. Each Belk Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each Belk Company is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, except where the failure to be so qualified or licensed or to be in good standing would not, individually or in the aggregate, have a Material Adverse Effect on any Belk Company (as defined below). Each Belk Company has delivered to New Belk complete and correct copies of its articles or certificate of incorporation and bylaws or other organizational documents and all amendments thereto to the date hereof. As used in this Agreement, the phrase "Material Adverse Effect on Belk Company" means as to B-7 <PAGE> 118 a particular Belk Company a material adverse effect on (a) the financial condition, business or results of operations of such Belk Company and its subsidiaries (if any) on a consolidated basis or (b) the ability of such Belk Company to consummate the transactions contemplated by this Agreement. 3.2 Authority; Enforceability. Each Belk Company has the corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby, subject to the approval of this Agreement by the stockholders of each Belk Company and, to the extent applicable, subject to compliance with the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Subject to such approval and compliance, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of each Belk Company, and this Agreement has been duly executed and delivered by each Belk Company and constitutes the valid and binding obligation of such Belk Company, enforceable against it in accordance with its terms, (i) except as may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) subject to general principles of equity. 3.3 Investigation by Company. In entering into this Agreement, each Belk Company: (a) acknowledges that none of New Belk or any of its directors, shareholders, officers, employees, affiliates, agents or representatives has made any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information provided or made available to such Belk Company or its agents or representatives prior to the execution of this Agreement; and (b) agrees, to the fullest extent permitted by law, that none of New Belk or any of its directors, shareholders, officers, employees, affiliates, agents or representatives shall have any liability or responsibility whatsoever to such Belk Company or any of its directors, shareholders, officers, employees, agents, affiliates or representatives on any basis (including, without limitation, in contract or tort, under federal or state securities laws or otherwise) based upon any information provided or made available, or statements made, to such Belk Company or its agents or representatives prior to the execution of this Agreement, except that the foregoing shall not apply (i) to the extent New Belk makes the specific representations and warranties set forth in Article 4 of this Agreement, but always subject to the limitations and restrictions contained in this Agreement, or (ii) to the extent New Belk or any of its directors, officers, employees, affiliates, agents or representatives commits fraud with respect to the information that it provides or makes available to such Belk Company or its agents or representatives. 3.4 Information in Disclosure Documents. None of the information to be supplied by any of the Belk Companies for inclusion or incorporation by reference in the Proxy Statement (defined herein) or the Registration Statement (defined herein) filed by New Belk pursuant to the Securities Act (defined herein), as amended, and the rules and regulations promulgated thereunder by the Securities and Exchange Commission, at the time it becomes effective and at the Effective Time or, in the case of the Proxy Statement (defined herein) or any amendments or supplements thereto, at the Mailing Date (defined herein) of the Proxy Statement and any amendments or supplements thereto and at the time of the meetings of stockholders to be held in connection with the Mergers, contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF NEW BELK New Belk hereby represents and warrants to each Belk Company as follows: 4.1 Organization, Good Standing and Power. New Belk is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. New Belk Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of B-8 <PAGE> 119 South Carolina and has all requisite corporate power and authority to own, lease and operate its properties and to carry out its business as now being conducted. Each of New Belk and New Belk Sub is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties make such qualification or licensing necessary, except where the failure to be so qualified or licensed or to be in good standing would not, individually or in the aggregate, have a Material Adverse Effect on New Belk (as defined below). As used in this Agreement, the phrase "Material Adverse Effect on New Belk" means a material adverse effect on (a) the financial condition, business or results of operations of New Belk or (b) the ability of New Belk to consummate the transactions contemplated by this Agreement. 4.2 Capitalization. (a) The authorized capital stock of New Belk consists of (i) 200,000,000 shares of Class A Common Stock, $.01 par value per share, of which as of the date hereof one (1) share was issued and outstanding, (ii) 200,000,000 shares of Class B Common Stock, $.01 par value per share, of which as of the date hereof no shares are issued and outstanding, and (iii) 20,000,000 shares of Preferred Stock, $.01 par value per share, of which as of the date hereof no shares are issued and outstanding. The outstanding share of New Belk Class A Common Stock is duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. All of the shares of New Belk Class A Common Stock to be issued in exchange for Belk Company common stock at the Effective Time in accordance with this Agreement will be, when so issued, duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights. Except as set forth above, as of the date hereof, there were no shares of capital stock or other equity securities of New Belk outstanding, and there are no outstanding options, warrants or rights to purchase or acquire from New Belk any capital stock of New Belk, there are no existing registration covenants with New Belk with respect to outstanding shares of New Belk Class A Common Stock, and there are no convertible securities or other contracts, commitments, agreements, understandings, arrangements or restrictions by which New Belk is bound to issue any additional shares of its capital stock or other securities. (b) The authorized capital stock of New Belk Sub consists of 100 shares of common stock, $.01 par value per share, of which as of the date hereof one (1) share was issued and outstanding. The outstanding share of New Belk Sub common stock is duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. Except as set forth above, as of the date hereof, there were no shares of capital stock or other equity securities of New Belk Sub outstanding, and there were no outstanding options, warrants or rights to purchase or acquire from New Belk Sub any capital stock of New Belk Sub, there are no existing registration covenants with New Belk Sub with respect to outstanding shares of New Belk Sub common stock, and there are no convertible securities or other contracts, commitments, agreements, understandings, arrangements or restrictions by which New Belk Sub is bound to issue any additional shares of its capital stock or other securities. 4.3 Authority; Enforceability. Each of New Belk and New Belk Sub has the corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby, subject to the approval of this Agreement by the stockholders of New Belk and, to the extent applicable, subject to compliance with the provisions of the HSR Act. Subject to such approval and compliance, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of New Belk and New Belk Sub, and this Agreement has been duly executed and delivered by New Belk and New Belk Sub and constitutes the valid and binding obligation of New Belk and New Belk Sub, enforceable against New Belk and New Belk Sub in accordance with its terms, (i) except as may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) subject to general principles of equity. 4.4 Investigation by New Belk. Each of New Belk and New Belk Sub has conducted its own independent review and analysis of the businesses, assets, condition, operations and prospects of each Belk Company and each acknowledges that it and its agents and representatives have been provided access to the properties, premises and records of each Belk Company for this purpose. In entering into this Agreement, B-9 <PAGE> 120 New Belk and New Belk Sub have relied solely upon its own investigation and analysis and the representations and warranties contained herein, and New Belk and New Belk Sub: (a) acknowledge that none of the Belk Companies or any of their directors, shareholders, officers, employees, affiliates, agents or representatives has made any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information provided or made available to New Belk or New Belk Sub or its agents or representatives prior to the execution of this Agreement; and (b) agree, to the fullest extent permitted by law, that none of such Belk Companies or any of its directors, shareholders, officers, employees, affiliates, agents or representatives shall have any liability or responsibility whatsoever to New Belk or New Belk Sub on any basis (including, without limitation, in contract or tort, under federal or state securities laws or otherwise) based upon any information provided or made available, or statements made, to New Belk or New Belk Sub or its agents or representatives prior to the execution of this Agreement, except that the foregoing shall not apply (i) to the extent any such Belk Company makes the specific representations and warranties set forth in Article 3 of this Agreement, but always subject to the limitations and restrictions contained in this Agreement, or (ii) to the extent any such Belk Company or any of its directors, shareholders, officers, employees, affiliates, agents or representatives commits fraud with respect to the information that it provides or makes available to such Belk Company or its agents or representatives. ARTICLE 5 CONDUCT OF BUSINESS PENDING THE EFFECTIVE TIME; CERTAIN COVENANTS 5.1 Conduct of Business Pending Merger. (a) Each Belk Company agrees that from the date hereof to the Effective Time, except as contemplated by this Agreement or to the extent that New Belk shall otherwise consent in writing (which consent will not be unreasonably withheld or delayed), each Belk Company will operate its businesses only in the ordinary course and, consistent with such operation, will use reasonable efforts consistent with past practices to preserve their business organization intact, to keep available to it the goodwill of its customers and others with whom business relationships exist to the end that its goodwill and ongoing business shall not be impaired in any material respect at the Effective Time, and will further exercise reasonable efforts to maintain their existing relationships with its employees. (b) Each Belk Company agrees that from the date hereof to the Effective Time, except as otherwise consented to by New Belk and New Belk Sub in writing (which consent will not be unreasonably withheld or delayed) or as permitted, required or contemplated by this Agreement, (i) it will not change any provision of its articles or certificate of incorporation or bylaws or similar governing documents; (ii) except as provided in Section 5.13, it will not make, declare or pay any dividend; and (iii) it will not make any distribution or directly or indirectly sell, issue, redeem, purchase or otherwise acquire, any shares of its outstanding capital stock, change the number of shares of its authorized or issued capital stock or issue or grant any option, warrant, call, commitment, subscription, right to purchase or agreement of any character relating to its authorized or issued capital stock or any securities convertible into shares of such stock. (c) New Belk and New Belk Sub agree that from the date hereof to the Effective Time, each of New Belk and New Belk Sub will conduct its respective operations only as contemplated hereby. 5.2 Belk-Simpson Reorganization. Prior to the date (the "Mailing Date") that the Belk Companies mail the Proxy Statement to the shareholders in connection with the Stockholder Meetings (herein defined), Belk-Simpson shall complete the plan of reorganization which has been agreed to by Belk-Simpson and New Belk (the "Belk-Simpson Plan of Reorganization"). If Belk-Simpson has not completed the Belk-Simpson Plan of Reorganization prior to the Mailing Date, Belk-Simpson shall use its best efforts to take such alternative steps as may be agreed to by Belk-Simpson and New Belk so that, on the Effective Time, the assets of Belk-Simpson shall consist solely of the assets related to, and necessary for the conduct of, the retail department store business of Belk-Simpson as described in the Belk-Simpson Plan of Reorganization. B-10 <PAGE> 121 5.3 Takeover Statutes. If any "fair price," "moratorium," "control share acquisition," "business combination," "stockholder protection" or similar antitakeover statute or regulation enacted under state or federal law shall become applicable to the Merger or any of the other transactions contemplated hereby, each of the Belk Companies, New Belk Sub and New Belk will grant such approvals and take such commercially reasonable actions so that each Merger and the other transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise use commercially reasonable efforts to eliminate or minimize the effects of such statute or regulation on each such Merger and the other transactions contemplated hereby. 5.4 Consents. Each of the Belk Companies, New Belk Sub and New Belk will use its commercially reasonable efforts to obtain the written consent or approval of each and every governmental authority and other regulatory body and each third party, the consent or approval of which shall be required in order to permit New Belk, New Belk Sub and such Belk Company to consummate the transactions contemplated by this Agreement. 5.5 Further Assurances. Subject to the terms and conditions herein provided, each of the parties hereto will promptly file and prosecute diligently the applications and related documents required to be filed by such party with applicable governmental authorities and regulatory bodies in order to effect the transactions contemplated hereby, including, to the extent applicable, filings under the HSR Act requesting early termination of the applicable waiting period. Each party hereto agrees to use commercially reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement will take all such necessary action. Each of the parties hereto agrees to defend vigorously against any actions, suits or proceedings in which such party is named as defendant which seeks to enjoin, restrain or prohibit the transactions contemplated hereby or seeks damages with respect to such transactions. 5.6 Notice; Efforts to Remedy. Each party hereto will promptly give written notice to the other parties hereto upon becoming aware of the impending occurrence of any event which would cause or constitute a breach of any of the representations, warranties or covenants of such party contained in this Agreement and shall use commercially reasonable efforts to prevent or promptly remedy the same. During the period from the date of this Agreement to the Effective Time, each Belk Company will cause one or more of its representatives to confer on a regular and frequent basis with representatives of New Belk and to report on the business, financial condition and results of operations of such Belk Company. Each Belk Company will promptly notify New Belk and New Belk Sub of any material change in the normal course of such Belk Company's business or in the operation of its properties or of the receipt by such Belk Company of notice of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated) or the receipt by such Belk Company of a notice of the institution or the threat of litigation involving such Belk Company and will keep New Belk and New Belk Sub fully informed with respect to such events. 5.7 Registration Statement; Stockholder Approvals. (a) As soon as is reasonably practicable after the execution of this Agreement, New Belk shall prepare and file with the SEC a registration statement on Form S-4 with respect to the New Belk Class A Common Stock to be issued in each Merger, which registration statement shall also constitute a proxy statement of the Belk Companies (the "Registration Statement"). New Belk and the Belk Companies shall use commercially reasonable efforts to cause the Registration Statement to become effective under the Securities Act of 1933, as amended (the "Securities Act") as promptly as practicable after such filing and shall take all commercially reasonable actions required to be taken under any applicable state blue sky or securities laws in connection with the issuance of the shares of New Belk Class A Common Stock pursuant to this Agreement. Each party hereto shall furnish all information concerning it and the holders of its capital stock as the other party hereto may reasonably request in connection with such actions. (b) Each Belk Company shall call a meeting of its stockholders to be held as soon as practicable after the date hereof for the purpose of voting upon the Merger for such Belk Company and this Agreement (the B-11 <PAGE> 122 "Stockholder Meetings"). Each Belk Company shall mail the proxy statement contained in the Registration Statement (the "Proxy Statement") to its stockholders in connection with its Stockholder Meeting, and the Board of Directors of each Belk Company shall recommend to its stockholders the approval of the Merger for such Belk Company and this Agreement and use commercially reasonable efforts to obtain such stockholder approval. 5.8 Expenses. All expenses incident to preparing for, entering into, and carrying out this Agreement and to consummating each Merger shall be paid by Belk Stores Services, Inc. 5.9 Indemnification of Officers and Directors. (a) Until such time as the applicable statute of limitations shall have expired, New Belk shall provide with respect to each present or former director and officer of a Belk Company (the "Indemnified Parties") the indemnification rights (including any rights to advancement of expenses) which such Indemnified Parties had from such Belk Company immediately prior to the Merger, whether under applicable state law or the bylaws of such Belk Company or otherwise. (b) New Belk shall cause to be in effect at the Effective Time the current policies of directors' and officers' liability insurance maintained by each Belk Company; provided New Belk may substitute therefor policies of at least the same coverage and amounts containing terms and conditions which are no less advantageous with respect to claims arising from facts or events which occurred at or before the Effective Time, and New Belk shall maintain such coverage for a period of six years after the Effective Time. (c) This Section 5.9 shall survive the Closing and is intended to benefit each Belk Company, New Belk and each of the Indemnified Parties and his or her heirs and representatives (each of whom shall be entitled to enforce this Section 5.9 against New Belk to the extent specified herein) and shall be binding on all successors and assigns of New Belk. 5.10 Tax Treatment. Each of New Belk, New Belk Sub and the Belk Companies agree to treat each Merger (other than the Belk-Simpson Merger) as a reorganization within the meaning of Section 368(a) of the Code and to treat the Belk-Simpson Merger as an exchange qualifying under Section 351(a) of the Code. During the period from the date of this Agreement through the Effective Time, unless the parties shall otherwise agree in writing, neither New Belk, New Belk Sub nor any Belk Company shall knowingly take or fail to take any action which action or failure to act would jeopardize qualification of any Merger as a reorganization within the meaning of Section 368(a) of the Code or that would jeopardize the qualification of the Belk-Simpson Merger as an exchange qualifying under Section 351(a) of the Code. 5.11 Confidentiality. Each of the Belk Companies, New Belk Sub and New Belk agree that it will not make any disclosures about the contents of this Agreement or negotiations relating to the proposed transactions or cause the contents thereof to be publicized in any manner whatsoever by way of interviews, responses to questions or inquiries, press releases or otherwise, or otherwise disclose any aspect or proposed aspect of the proposed transactions, without prior notice to and approval of the other parties, except as may otherwise be required by law. In the event that any party determines that it is required by law to make any such disclosure, it will notify the other parties prior to making such disclosure in order to permit the other parties to obtain an appropriate protective order. 5.12 No Solicitation of Transactions. Until the valid termination of this Agreement, no Belk Company shall directly or indirectly, through any director, shareholder, officer, employee, affiliate, agent or representative, initiate, solicit or knowingly encourage (including by way of furnishing non-public information or assistance), or enter into negotiations of any type, directly or indirectly, or enter into a letter of intent or purchase agreement, merger agreement or other similar agreement with any person, firm or corporation with respect to a sale of any substantial portion of the assets of such Belk Company or a merger, consolidation, business combination, sale of all or any portion of the capital stock of such Belk Company, or the liquidation or similar extraordinary transaction with respect to such Belk Company. Each Belk Company shall notify the other parties in writing (as promptly as practicable) of all relevant terms of any proposals by a third party to do any of the foregoing which such Belk Company or any of its directors, shareholders, officers, employees, affiliates, agents or representatives may receive relating to any of such matters. B-12 <PAGE> 123 5.13 Dividends. Each Belk Company may, in the discretion of its Board of Directors, pay dividends for fiscal year 1997 in amounts consistent with dividends paid for prior years, provided that (i) each Belk Company shall retain cash sufficient to meet normal working capital requirements and (ii) without the prior consent of New Belk, no Belk Company shall pay dividends in an aggregate amount in excess of the aggregate amount paid in dividends for fiscal year 1996. ARTICLE 6 CONDITIONS PRECEDENT TO MERGER 6.1 Conditions to Each Party's Obligations. The respective obligations of each party to effect the Merger relating to such party shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions: (a) This Agreement and the Merger for each Belk Company shall have been approved and adopted by the affirmative vote or consent of the holders of at least the number of shares of outstanding common stock of such Belk Company specified in Exhibit A attached hereto. (b) All consents, authorizations, orders and approvals of (or filings or registrations with) any governmental authority or other regulatory body required in connection with the execution, delivery and performance of this Agreement shall have been obtained and shall be in full force and effect. (c) All authorizations, consents, waivers and approvals from third parties to contracts or other agreements to which any Belk Company, New Belk Sub or New Belk is a party, or by which either is bound, as may be required to be obtained by it in connection with the performance of this Agreement shall have been obtained and shall be in full force and effect. (d) To the extent applicable, early termination shall have been granted or applicable waiting periods shall have expired under the HSR Act. (e) No governmental authority or other regulatory body (including any court of competent jurisdiction) shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making illegal or in any way preventing or prohibiting the Merger or the transactions contemplated by this Agreement. (f) The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall be in effect and no proceedings for such purpose, or under the proxy rules of the SEC pursuant to the Exchange Act and with respect to the transactions contemplated hereby, shall be pending before or threatened by the SEC. At the effective date of the Registration Statement, the Registration Statement shall not contain any untrue statement of a material fact, or omit to state any material fact necessary in order to make the statements therein not misleading, and, at the Mailing Date, the Proxy Statement shall not contain any untrue statement of a material fact, or omit to state any material fact necessary in order to make the statements therein not misleading. 6.2 Conditions to Obligations of the Belk Companies. The obligations of each Belk Company to effect the Merger for such Belk Company shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions unless waived by such Belk Company: (a) The representations and warranties of New Belk set forth in this Agreement shall be true and correct in all material respects at and as of the date of this Agreement and at and as of the Closing Date as though made at and as of the Closing Date, except to the extent such representations and warranties are made as of a specified date and except to the extent contemplated or permitted by this Agreement. (b) New Belk and New Belk Sub shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement at or prior to the Closing Date. B-13 <PAGE> 124 (c) New Belk and New Belk Sub shall furnish the Belk Companies with a certificate of its appropriate officers as to compliance with the conditions set forth in Sections 6.2(a) and (b). 6.3 Conditions to Obligations of New Belk and New Belk Sub. The obligations of New Belk and New Belk Sub to effect the Merger for any Belk Company shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions unless waived by New Belk and New Belk Sub: (a) The representations and warranties of each Belk Company set forth in this Agreement shall be true and correct in all material respects at and as of the date of this Agreement and at and as of the Closing Date as though made at and as of the Closing Date, except to the extent such representations and warranties are made as of a specified date and except to the extent contemplated or permitted by this Agreement. (b) Each Belk Company shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement at or prior to the Closing Date. (c) No holders of common stock of any of the Belk Companies issued and outstanding at the Effective Time shall have exercised dissenters' rights under applicable state law. (d) Each Belk Company shall furnish New Belk and New Belk Sub with a certificate of its appropriate officers as to compliance with the conditions set forth in Sections 6.3(a), (b) and (c). (e) Each Belk Company (other than Belk-Simpson) shall have merged with and into New Belk. (f) Belk-Simpson shall have completed the Belk-Simpson Plan of Reorganization or shall have taken such alternative steps as shall have been agreed to by Belk-Simpson and New Belk to reorganize its business as contemplated by Section 5.2 hereof and New Belk Sub shall have merged with and into Belk-Simpson. 6.4 Conditions to Obligations of Belk-Simpson. The obligation of Belk-Simpson to effect the Merger of Belk-Simpson shall be subject to the completion on or prior to the Closing Date of the Belk-Simpson Plan of Reorganization or the completion of such alternative steps as shall have been agreed to by Belk-Simpson and New Belk to reorganize Belk-Simpson's business as contemplated by Section 5.2 hereof. ARTICLE 7 TERMINATION AND ABANDONMENT OF THE REORGANIZATION 7.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after the approval by the stockholders of any Belk Company: (a) by the mutual written consent of New Belk, New Belk Sub and a Belk Company as to the Merger for such Belk Company; (b) by a Belk Company as to the Merger for such Belk Company if: (i) the Merger for such Belk Company is not consummated on or before June 1, 1998 (or such later date as shall have been approved by New Belk, New Belk Sub and such Belk Company), unless the failure of such occurrence shall be due to the failure of such Belk Company to perform or observe the covenants, agreements and conditions hereof to be performed or observed by it at or before the Effective Time; (ii) an event occurs which renders impossible the satisfaction by New Belk or New Belk Sub of one or more of the conditions set forth in Sections 6.1 and 6.2 required to be satisfied by New Belk or New Belk Sub and such conditions are not waived by such Belk Company, unless the failure to satisfy such condition shall be due to the failure of such Belk Company to perform or observe the covenants, agreements and conditions hereof to be performed or observed by it at or before the Effective Time; or B-14 <PAGE> 125 (iii) such Belk Company is enjoined or restrained by any governmental authority or regulatory body (including any court) from performing its obligations hereunder and any such injunction or order shall not have been withdrawn by the earlier to occur of the date 60 days after the date on which such injunction or order was first issued or June 1, 1998. (c) by New Belk as to the Merger relating to a Belk Company or, at the election of New Belk, as to the Reorganization as a whole if: (i) the Merger of any Belk Company is not consummated on or before June 1, 1998 (or such later date as shall have been approved by such Belk Company, New Belk Sub and New Belk), unless the failure of such occurrence shall be due to the failure of New Belk or New Belk Sub to perform or observe the covenants, agreements and conditions hereof to be performed or observed by it at or before the Effective Time; (ii) an event occurs which renders impossible the satisfaction by such Belk Company of one or more of the conditions set forth in Sections 6.1 and 6.3 required to be satisfied by such Belk Company and such conditions are not waived by New Belk and New Belk Sub, unless the failure to satisfy such condition shall be due to the failure of New Belk to perform or observe the covenants, agreements and conditions hereof to be performed or observed by it at or before the Effective Time; (iii) New Belk or New Belk Sub is enjoined or restrained by any governmental authority or other regulatory body (including any court) from performing its obligations hereunder and any such injunction or order shall not have been withdrawn by the earlier to occur of the date 60 days after the date on which such injunction or order was first issued or June 1, 1998; (iv) the shareholders of such Belk Company do not approve this Agreement and the Merger relating to such Belk Company at its Stockholder Meeting; (v) the Board of Directors of a Belk Company shall have withdrawn, or modified in a manner adverse to New Belk, its recommendation of this Agreement and such Merger; or (vi) any stockholder owning shares of common stock in such Belk Company shall have elected to dissent from and exercise dissenters' rights with respect to the Merger relating to such Belk Company. (d) by Belk-Simpson as to the Belk-Simpson Merger if an event occurs which renders impossible the satisfaction of the condition set forth in Section 6.4 required to be satisfied by Belk-Simpson and such condition is not waived by Belk-Simpson, unless the failure to satisfy such condition shall be due to the failure of Belk-Simpson to perform or observe the covenants, agreements and conditions hereof to be performed or observed by it at or before the Effective Time. 7.2 Effect of Termination and Abandonment. In the event of the termination and abandonment of this Agreement under Section 7.1, this Agreement shall become void and have no effect, without any liability on the part of any party or its directors, officers or stockholders, except (i) as provided in Sections 5.8 and 5.11 and (ii) to the extent that such termination results from the willful breach by any party hereto of any material representation, warranty or covenant hereunder. ARTICLE 8 MISCELLANEOUS 8.1 Waiver and Amendment. Any term or provision of this Agreement may be waived in writing at any time by the party which is, or whose stockholders are, entitled to the benefits thereof, and any term or provision of this Agreement may be amended or supplemented at any time by action of New Belk, New Belk Sub and the Belk Companies, whether before or after the Stockholder Meetings; provided, however, that after approval of the stockholders of the Belk Companies at the Stockholders' Meetings, no such amendment shall reduce the amount or change the form of the consideration to be delivered to each Belk Company's stockholders as contemplated by this Agreement or otherwise materially adversely affect the interests of such B-15 <PAGE> 126 stockholders unless such amendment is approved by the stockholders of each Belk Company. No amendment to this Agreement shall be effective unless it has been executed by each Belk Company, New Belk Sub and New Belk. 8.2 Non-Survival of Representations, Warranties and Agreements. Except for the agreements contained in Sections 5.8, 5.9 and 5.11 and this Section 8.2, none of the representations, warranties and agreements of the Belk Companies, New Belk Sub or New Belk in this Agreement, or in any instrument or certificate delivered pursuant to this Agreement, shall survive the Merger for any Belk Company and none of its stockholders, directors or officers shall have any liability to the other after the Effective Time on account of any breach of any representation or warranty or agreement contained herein or in any certificate or other instrument delivered pursuant to this Agreement. The sole right and remedy arising from a breach of any such representation or warranty or agreement, from the failure of any of the conditions of such Merger to be met, or from the failure to perform any promise or discharge any obligation in this Agreement, shall be termination of this Agreement by the aggrieved party and the remedies provided in Section 7.2. 8.3 Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally, telecopied (if confirmed) or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: If to a Belk Company: Belk Stores Services, Inc. 2801 West Tyvola Road Charlotte, North Carolina 28217 Attention: Ralph A. Pitts, General Counsel Telecopy No.: (704) 357-1883 If to New Belk: 2801 West Tyvola Road Charlotte, North Carolina 28217 Attention: Ralph A. Pitts, General Counsel Telecopy No.: (704) 357-1883 If to New Belk Sub: 2801 West Tyvola Road Charlotte, North Carolina 28217 Attention: Ralph A. Pitts, General Counsel Telecopy No.: (704) 357-1883 8.4 Descriptive Headings; Interpretation. The descriptive headings are for convenience of reference only and shall not control or affect the meaning or construction of any provision of this Agreement. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The phrases "the date of this Agreement", "the date hereof", and terms of similar import, unless the context otherwise requires, shall be deemed to refer to November 25, 1997. 8.5 Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. This Agreement shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that the parties need not sign the same counterpart. 8.6 Entire Agreement. This Agreement contains the entire agreement between New Belk and each Belk Company with respect to each Merger, and supersede all prior arrangements or understandings with respect to the subject matter hereof. Except as otherwise contemplated in Section 8.2 (which covenants shall be enforceable by the person or persons affected thereby following the Effective Time), this Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. B-16 <PAGE> 127 8.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO ANY APPLICABLE CONFLICTS OF LAW PROVISIONS THEREOF). 8.8 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions be consummated as originally contemplated to the fullest extent possible. 8.9 Enforcement of Agreement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States of America or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 8.10 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, and any attempt to make any such assignment without such consent shall be null and void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. 8.11 Limited Liability. Notwithstanding any other provision of this Agreement, no director, shareholder, officer, employee, affiliate, agent or representative of any Belk Company or New Belk shall have any personal liability in respect of or relating to the covenants, obligations, representations or warranties of such party under this Agreement or in respect of any certificate delivered with respect hereto or thereto, except to the extent that such person or entity has engaged in fraud with respect to such matters. Except as set forth in the preceding sentence, to the fullest extent legally permissible, each of the Belk Companies, New Belk Sub and New Belk, for itself and its directors, shareholders, officers, employees, affiliates, agents and representatives, waives and agrees not to seek to assert or enforce any such liability that any such person otherwise might have pursuant to applicable law. 8.12 CONSENT TO JURISDICTION; SERVICE OF PROCESS. (a) EACH PARTY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION, SUIT OR PROCEEDING BY OR AGAINST IT WITH RESPECT TO ITS RIGHTS, OBLIGATIONS OR LIABILITIES UNDER THIS AGREEMENT OR ANY OTHER AGREEMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT BY SUCH PARTY ONLY IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE OR, IF (BUT ONLY IF) SUCH COURT DOES NOT HAVE SUBJECT MATTER JURISDICTION OVER SUCH ACTION, SUIT OR PROCEEDING (INCLUDING, WITHOUT LIMITATION, CLAIMS FOR INTERIM RELIEF, COUNTERCLAIMS, ACTIONS WITH MULTIPLE DEFENDANTS AND ACTIONS IN WHICH SUCH PARTY IS IMPLED). EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO A JURY TRIAL IN ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO, OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER AGREEMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT. (b) EACH BELK COMPANY HEREBY IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM (IN SUCH CAPACITY, THE "PROCESS AGENT"), WITH AN OFFICE AT 1209 ORANGE STREET, WILMINGTON, DELAWARE 19801 AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, FOR AND ON ITS BEHALF SERVICE OF PROCESS IN SUCH JURISDICTION IN ANY LEGAL ACTION OR PROCEEDINGS WITH RESPECT TO THIS AGREEMENT B-17 <PAGE> 128 OR ANY OTHER AGREEMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT, AND SUCH SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY THEREOF TO THE PROCESS AGENT, PROVIDED THAT IN THE CASE OF ANY SUCH SERVICE UPON THE PROCESS AGENT, THE PARTY EFFECTING SUCH SERVICE SHALL ALSO DELIVER A COPY THEREOF TO COMPANY IN THE MANNER PROVIDED IN SECTION 8.3. EACH BELK COMPANY SHALL TAKE ALL SUCH ACTION AS MAY BE NECESSARY TO CONTINUE SAID APPOINTMENT IN FULL FORCE AND EFFECT OR TO APPOINT ANOTHER AGENT SO THAT NEW BELK WILL AT ALL TIMES HAVE AN AGENT FOR SERVICE OF PROCESS FOR THE ABOVE PURPOSES IN DELAWARE. IN THE EVENT OF THE TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS AND BUSINESS OF THE PROCESS AGENT TO ANY OTHER CORPORATION BY CONSOLIDATION, MERGER, SALE OF ASSETS OR OTHERWISE, SUCH OTHER CORPORATION SHALL BE SUBSTITUTED HEREUNDER FOR THE PROCESS AGENT WITH THE SAME EFFECT AS IF NAMED HEREIN IN PLACE OF CT CORPORATION SYSTEM. EACH BELK COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED AIRMAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH IN THIS AGREEMENT, SUCH SERVICE OF PROCESS TO BE EFFECTIVE UPON ACKNOWLEDGMENT OF RECEIPT OF SUCH REGISTERED MAIL. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW. EACH BELK COMPANY EXPRESSLY ACKNOWLEDGES THAT THE FOREGOING WAIVER IS INTENDED TO BE IRREVOCABLE UNDER THE LAWS OF THE STATE OF DELAWARE AND OF THE UNITED STATES OF AMERICA. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed and delivered by its respective duly authorized officers, all as of the date first above written. BELK, INC. By: /s/ JOHN M. BELK ----------------------------------- John M. Belk President BELK ACQUISITION CO. By: /s/ JOHN M. BELK ----------------------------------- John M. Belk President THE BELK COMPANIES By: /s/ JOHN M. BELK ----------------------------------- John M. Belk* * For each of the Belk Companies listed on Exhibit A in his capacity as Chairman B-18 <PAGE> 129 EXHIBIT A TO PLAN AND AGREEMENT OF REORGANIZATION <TABLE> <CAPTION> VOTING STATE OF APPLICABLE BELK COMPANY REQUIREMENT ORGANIZATION EXCHANGE RATIO - ------------ ----------- --------------- -------------- <S> <C> <C> <C> Belk-Simpson Company of Paragould, Arkansas, Inc............................................ Two-thirds Arkansas 74.3274 Belk Department Store of Stuttgart, Ark., Inc.... Two-thirds Arkansas 5.5939 Belk-Lindsey Stores, Inc......................... Majority Florida 5.6854 Belk's Department Store of Albany, Georgia....... Majority Georgia 22.9358 Belk of Americus, Ga., Inc....................... Majority Georgia 13.2469 Belk of Athens, Ga., Inc......................... Majority Georgia 57.4874 Belk-Simpson Co., of Bainbridge, Ga., Inc........ Majority Georgia 52.0164 Belk of Canton, Ga., Inc......................... Majority Georgia 29.6643 Belk-Rhodes Company, of Carrollton, Ga........... Majority Georgia 31.6576 Belk's Department Store of Cartersville, Georgia, Incorporated................................... Majority Georgia 31.3416 Belk of Cornelia, Ga., Inc....................... Majority Georgia 37.1607 Belk of Covington, Ga., Inc...................... Majority Georgia 35.3836 Belk of Dalton, Ga., Inc......................... Majority Georgia 53.0357 Belk-Matthews Company of Dublin, Georgia......... Majority Georgia 59.8273 Belk of Hartwell, Ga., Inc....................... Majority Georgia 27.4919 Belk of LaGrange, Ga., Inc....................... Majority Georgia 0.3854 Belk of Lawrenceville, Ga., Inc.................. Majority Georgia 32.2086 Belk-Matthews Company of Macon, Georgia.......... Majority Georgia 100.3514 Belk-Matthews Company of Milledgeville, Ga., Inc............................................ Majority Georgia 37.1292 Belk of Monroe, Ga., Inc......................... Majority Georgia 16.8846 Belk of Newnan, Ga., Inc......................... Majority Georgia 18.6079 Belk-Rhodes Company, (Rome, Georgia)............. Majority Georgia 27.9926 Belk of Statesboro, Ga., Inc..................... Majority Georgia 24.9249 Belk of Thomaston, Ga., Inc...................... Majority Georgia 0.4198 Belk of Toccoa, Ga., Inc......................... Majority Georgia 30.4792 Belk-Matthews Company, Vidalia, Georgia, Inc..... Majority Georgia 51.6141 Belk of Washington, Ga., Inc..................... Majority Georgia 27.4186 Belk of Waycross, Ga., Inc....................... Majority Georgia 15.6892 Belk-Simpson Company of Corbin, Kentucky, Incorporated................................... Majority Kentucky 107.7843 Belk-Simpson Company of Harlan, Kentucky, Incorporated................................... Majority Kentucky 128.1260 Belk of Miss., Inc............................... Majority Mississippi 9.2288 Belk Department Store of Ahoskie, N.C., Inc...... Majority North Carolina 52.4278 Belk's Department Store of Albemarle, North Carolina, Incorporated......................... Majority North Carolina 37.9201 Belk of Asheboro, N.C., Inc...................... Majority North Carolina 112.9932 Belk's Department Store of Asheville, North Carolina, Incorporated......................... Majority North Carolina 19.5822 Belk-Matthews Company............................ Majority North Carolina 28.0446 Belk's Department Store of Boone, North Carolina, Incorporated................................... Majority North Carolina 141.8798 Belk's Department Store of Brevard, N.C., Incorporated................................... Majority North Carolina 39.2961 Belk-Beck Company of Burlington, North Carolina, Inc............................................ Majority North Carolina 108.1637 Belk Brothers Company............................ Majority North Carolina 96.5373 Belk Enterprises, Inc............................ Majority North Carolina 18.3948 </TABLE> B-19 <PAGE> 130 <TABLE> <CAPTION> VOTING STATE OF APPLICABLE BELK COMPANY REQUIREMENT ORGANIZATION EXCHANGE RATIO - ------------ ----------- --------------- -------------- <S> <C> <C> <C> Belk-Matthews Company of Cherryville, N.C., Incorporated................................... Majority North Carolina 27.9410 Belk Department Store of Clinton, N.C., Inc...... Majority North Carolina 110.9315 Belk's Department Store of Dunn, North Carolina, Incorporated................................... Majority North Carolina 69.7736 Belk Department Store of Eden, N.C., Inc......... Majority North Carolina 75.2272 Belk Department Store of Elkin, N.C., Inc........ Majority North Carolina 46.7363 Belk Department Store of Forest City, N.C., Inc............................................ Majority North Carolina 35.9084 Hudson-Belk Co. of Fuquay-Varina, N.C., Inc...... Majority North Carolina 86.6616 Matthews-Belk Company............................ Majority North Carolina 36.3163 Belk Department Store of Greenville, N.C., Inc............................................ Majority North Carolina 157.7529 Belk-Simpson Company of Hendersonville, N.C., Incorporated................................... Majority North Carolina 190.3282 Belk Department Store of Hickory, N.C., Inc...... Majority North Carolina 177.3438 Belk-Beck Co. of High Point, N.C., Inc........... Majority North Carolina 36.7718 Belk's Department Store of Jacksonville, N.C., Inc............................................ Majority North Carolina 114.6357 Belk's Department Store of Lenoir, North Carolina, Incorporated......................... Majority North Carolina 38.0651 Belk Department Store of Lincolnton, N.C., Inc............................................ Majority North Carolina 228.2966 Belk Brothers of Monroe, North Carolina, Incorporated................................... Majority North Carolina 146.3804 Belk's Department Store of Morehead City, N.C., Inc............................................ Majority North Carolina 90.4704 Belk's Department Store of Mount Airy, North Carolina, Incorporated......................... Majority North Carolina 29.8331 Belk's Department Store of New Bern, N.C., Incorporated................................... Majority North Carolina 82.0669 Hudson-Belk Company.............................. Majority North Carolina 37.2881 Belk Department Store of Reidsville, N.C., Inc............................................ Majority North Carolina 81.9799 Belk's Department Store of Rockingham, N.C., Incorporated................................... Majority North Carolina 27.6841 Belk-Harry Company -- Salisbury, N.C............. Majority North Carolina 25.8928 Belk Department Store of Shelby, N.C., Inc....... Majority North Carolina 44.5544 Belk of Siler City, N.C., Inc.................... Majority North Carolina 4.9121 Belk Department Store of Waynesville, N.C., Inc............................................ Majority North Carolina 60.5204 Belk Department Store of Wilkesboro, N.C., Inc............................................ Majority North Carolina 72.8547 Belk's Department Store, Incorporated of Aiken, South Carolina................................. Two-thirds South Carolina 44.8539 Gallant-Belk Company............................. Two-thirds South Carolina 77.2560 Belk's Department Store of Batesburg, S.C., Inc............................................ Two-thirds South Carolina 49.1062 Belk-Simpson Company, Incorporated of Beaufort, South Carolina................................. Two-thirds South Carolina 148.8811 Belk's Department Store of Camden, S.C., Incorporated................................... Two-thirds South Carolina 82.5202 Belk Department Store of Charleston, S.C., Inc............................................ Two-thirds South Carolina 67.0371 Belk's Department Store of Conway, S.C., Incorporated................................... Two-thirds South Carolina 41.2481 Belk's Department Store of Florence, S.C., Incorporated................................... Two-thirds South Carolina 110.9899 Belk's Department Store of Gaffney, South Carolina, Incorporated......................... Two-thirds South Carolina 24.6978 Belk of Georgetown, S.C., Inc.................... Two-thirds South Carolina 51.7942 Belk-Simpson Company, Greenville, South Carolina....................................... Two-thirds South Carolina 13.9550 Belk Department Store of Greenwood, S.C., Inc.... Two-thirds South Carolina 128.1756 Belk's Department Store of Hartsville, S.C., Incorporated................................... Two-thirds South Carolina 104.5548 </TABLE> B-20 <PAGE> 131 <TABLE> <CAPTION> VOTING STATE OF APPLICABLE BELK COMPANY REQUIREMENT ORGANIZATION EXCHANGE RATIO - ------------ ----------- --------------- -------------- <S> <C> <C> <C> Belk's Department Store, Incorporated, of Lake City, South Carolina........................... Two-thirds South Carolina 24.3136 Belk's Department Store of Lancaster, S.C., Inc............................................ Two-thirds South Carolina 60.4771 Belk's Department Store of Laurens, South Carolina, Incorporated......................... Two-thirds South Carolina 40.5274 Belk of Orangeburg, S.C., Inc.................... Two-thirds South Carolina 89.8529 Belk of Seneca, S.C., Inc........................ Two-thirds South Carolina 42.1567 Belk of Spartanburg, S.C., Inc................... Two-thirds South Carolina 91.8256 Belk of Union, S.C., Inc......................... Two-thirds South Carolina 19.5084 Belk of Walterboro, S.C., Inc.................... Two-thirds South Carolina 103.0616 Belk's Department Store of Winnsboro, S.C., Incorporated................................... Two-thirds South Carolina 26.8157 Parks-Belk Company of Clarksville, Tennessee..... Majority Tennessee 39.5681 Belk Department Store of Greenville, Texas, Inc............................................ Two-thirds Texas 65.7339 Belk's Department Store of Paris, Texas, Inc..... Two-thirds Texas 67.2357 Parks-Belk Company, Incorporated................. Two-thirds Virginia 28.2089 Belk of Danville, Va., Inc....................... Two-thirds Virginia 139.7184 Belk of Lynchburg, Va., Inc...................... Two-thirds Virginia 37.0704 Belk Stores of Virginia, Inc..................... Two-thirds Virginia 93.2160 Belk of Roanoke, Va., Inc........................ Two-thirds Virginia 21.2688 Belk of South Boston, Va., Inc................... Two-thirds Virginia 77.4474 Belk of Dawson, Ga., Inc......................... Majority Georgia 28.7857 Belk of Elberton, Ga., Inc....................... Majority Georgia 29.2681 Belk of Thomson, Ga., Inc........................ Majority Georgia 27.2828 Belk Department Store of Edenton, N.C., Inc...... Majority North Carolina 33.8252 Belk of Thomasville, N.C., Inc................... Majority North Carolina 19.8801 Belk's Department Store of Chesterfield, S.C., Incorporated................................... Two-thirds South Carolina 17.9776 Belk's Department Store of Columbia, South Carolina, Incorporated......................... Two-thirds South Carolina 7.3208 Belk Finance Company............................. Majority North Carolina 1,210.1548 Belk-Simpson Realty Company...................... Two-thirds South Carolina 30.2356 Belk of Lawrenceville, Va., Inc.................. Two-thirds Virginia 377.5894 Belk Realty of Radford, Va., Inc................. Two-thirds Virginia 74.5480 Belk Realty of Staunton, Va., Inc................ Two-thirds Virginia 7.5568 Belk Outlet Center, Inc.......................... Two-thirds Virginia 49.4996 </TABLE> B-21 <PAGE> 132 EXHIBIT B TO PLAN AND AGREEMENT OF REORGANIZATION AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF BELK, INC. FIRST: The name of the corporation is Belk, Inc. (the "Corporation"). SECOND: The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, New Castle County, Wilmington, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law (the "DGCL"). FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 420,000,000, consisting of (i) 200,000,000 shares, par value $.01 per share, of Class A Common Stock (the "Class A Common Stock"); (ii) 200,000,000 shares, par value $.01 per share, of Class B Common Stock (the "Class B Common Stock"); and (iii) 20,000,000 shares, par value $.01 per share, of Preferred Stock ("Preferred Stock"). The Class A Common Stock and the Class B Common Stock shall hereinafter collectively be called the "Common Stock." 4.1 Common Stock Provisions. All shares of Common Stock will be identical in all respects and will entitle the holders thereof to the same rights and privileges, except as otherwise provided herein. 4.1.1 Voting Rights. The holders of shares of Common Stock shall have the following voting rights: (a) Each share of Class A Common Stock shall entitle the holder thereof to ten votes in person or by proxy on all matters submitted to a vote of the stockholders of the Corporation. (b) Each share of Class B Common Stock shall entitle the holder thereof to one vote in person or by proxy on all matters submitted to a vote of the stockholders of the Corporation. (c) Except as otherwise required by applicable law, the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation (or, except for the election or the removal of directors entitled to be elected by the holders of Common Stock described below, if any holders of shares of Preferred Stock are entitled to vote together with the holders of Common Stock, as a single class with such holders of shares of Preferred Stock). 4.1.2 Dividends and Distributions. Subject to the preferences applicable to Preferred Stock outstanding at any time, the holders of shares of Common Stock shall be entitled to receive such dividends and other distributions in cash, property or shares of stock of the Corporation as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor; provided, that, subject to the provisions of this Section 4.1.2, the Corporation shall not pay dividends or make distributions to any holders of any class of Common Stock unless simultaneously with such dividend or distribution, as the case may be, the Company makes the same dividend or distribution with respect to each outstanding share of Common Stock regardless of class. In the case of dividends or other distributions payable in Class A Common Stock or Class B Common Stock, including distributions pursuant to stock splits or divisions of Class A Common Stock or Class B Common Stock which occur after the first date upon which the Corporation has issued shares of either Class A Common Stock or Class B Common Stock, only shares of Class A Common Stock shall be distributed with respect to Class A Common Stock and only shares of Class B Common Stock shall be distributed with respect to Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of the Common Stock, is payable in shares of Class A Common Stock or Class B Common Stock, the number of shares of each class of Common B-22 <PAGE> 133 Stock payable per share of such class of Common Stock shall be equal in number. In the case of dividends or other distributions consisting of other voting securities of the Corporation or of voting securities of any corporation which is a wholly-owned subsidiary of the Corporation, the Corporation shall declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of Class B Common Stock shall be one-tenth of the voting rights of each such security paid to the holders of Class A Common Stock and (ii) such security paid to the holders of Class A Common Stock shall convert into the security paid to the holders of Class B Common Stock upon the same terms and conditions applicable to the conversion of Class A Common Stock into Class B Common Stock and shall have the same restrictions on transfer and ownership applicable to the transfer and ownership of the Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of the Corporation or voting securities of another corporation which is a wholly-owned subsidiary of the Corporation, the Corporation shall provide that such convertible or exchangeable securities and the underlying securities be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of Class B Common Stock shall be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the Class A Common Stock and (ii) such underlying securities paid to the holders of Class A Common Stock shall convert into the underlying securities paid to the holders of Class B Common Stock upon the same terms and conditions applicable to the conversion of Class A Common Stock into Class B Common Stock and shall have the same restrictions on transfer and ownership applicable to the transfer and ownership of the Class A Common Stock 4.1.3 Conversion of Class A Common Stock. (a) Each holder of Class A Common Stock shall be entitled to convert, at any time and from time to time, any or all of the shares of such holder's Class A Common Stock on a one-for-one basis, into the same number of fully paid and non-assessable shares of Class B Common Stock. Such right shall be exercised by the surrender of the certificate or certificates representing the shares of Class A Common Stock to be converted to the Corporation at any time during normal business hours at the principal executive offices of the Corporation, accompanied by a written notice of the holder of such shares stating that such holder desires to convert such shares, or a stated number of the shares represented by such certificate or certificates, into an equal number of shares of the Class B Common Stock, and (if so required by the Corporation) by instruments of transfer, in form satisfactory to the Corporation, duly executed by such holder or such holder's duly authorized attorney, and transfer tax stamps or funds therefor, if required pursuant to Section 4.1.3(e). (b) As promptly as practicable following the surrender for conversion of a certificate representing shares of Class A Common Stock in the manner provided in Section 4.1.3(a) and the payment in cash of any amount required by the provisions of Section 4.1.3(e), the Corporation will deliver or cause to be delivered a certificate or certificates representing the number of full shares of Class B Common Stock issuable upon such conversion, issued in such name or names as such holder may direct. Such conversion shall be deemed to have been effected immediately prior to the close of business on the date of the surrender of the certificate or certificates representing shares of Class A Common Stock. Upon the date any such conversion is made or effected, all rights of the holder of such shares as such holder shall cease, and the person or persons in whose name or names the certificates or certificates representing the shares of Class B Common Stock are to be issued shall be treated for all purposes as having become the record holder or holders of such shares of Class B Common Stock; provided, however, that if any such surrender and payment occurs on any date when the stock transfer books of the Corporation shall be closed, the person or persons in whose name or names the certificate or certificates representing shares of Class B Common Stock are to be issued shall be deemed the record holder or holders thereof for all purposes immediately prior to the close of business on the next succeeding day on which the stock transfer books are open. (c) In the event of a reclassification or other similar transaction as a result of which the shares of Class B Common Stock are converted into another security, then a holder of Class A Common Stock shall be entitled to receive upon conversion the amount of such security that such holder would have received if such conversion had occurred immediately prior to the record date of such reclassification or other similar B-23 <PAGE> 134 transaction. No adjustments in respect of dividends shall be made upon the conversion of any share of Class A Common Stock; provided, however, that if a share shall be converted subsequent to the record date for the payment of a dividend or other distribution on shares of Class A Common Stock but prior to such payment, then the registered holder of such share at the close of business on such record date shall be entitled to receive the dividend or other distribution payable on such share on such date notwithstanding the conversion thereof or the Corporation's default in payment of the dividend due on such date. (d) The Corporation covenants that it will at all times reserve and keep available out of its authorized but unissued shares of Class B Common Stock, solely for the purpose of issuance upon conversion of the outstanding shares of Class A Common Stock, such number of shares of Class B Common Stock that shall be issuable upon the conversion of all such outstanding shares of Class A Common Stock; provided that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of the conversion of the outstanding shares of Class A Common Stock by delivery of purchased shares of Class B Common Stock which are held in the treasury of the Corporation. The Corporation covenants that if any shares of Class B Common Stock require registration with or approval of any governmental authority under any federal or state law before such shares of Class B Common Stock may be issued upon conversion, the Corporation will cause such shares to be duly registered or approved, as the case may be. The Corporation will use its best efforts to list the shares of Class B Common Stock required to be delivered upon conversion prior to such delivery upon each national securities exchange upon which the outstanding Class B Common Stock is listed at the time of such delivery. The Corporation covenants that all shares of Class B Common Stock that shall be issued upon conversion of the shares of Class A Common Stock will, upon issue, be validly issued, fully paid and non-assessable. (e) The issuance of certificates for shares of Class B Common Stock upon conversion of shares of Class A Common Stock shall be made without charge to the holders of such shares except for any stamp or other similar tax in respect of such issuance; provided, however, that, if any such certificate is to be issued in a name other than that of the holder of the share or shares of Class A Common Stock converted, then the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax that may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of the Corporation that such tax has been paid. (f) Shares of Class A Common Stock that are converted into shares of Class B Common Stock as provided herein shall continue to be authorized shares of Class A Common Stock and available for reissue by the Corporation; provided, however, that no shares of Class A Common Stock shall be reissued except as expressly permitted by Sections 4.1.2 and 4.1.4 of this Amended and Restated Certificate of Incorporation. 4.1.4 Stock Splits. The Corporation shall not in any manner subdivide (by any stock split, stock dividend, reclassification, recapitalization or otherwise) or combine (by reverse stock split, reclassification, recapitalization or otherwise) the outstanding shares of one class of Common Stock unless the outstanding shares of all classes of Common Stock shall be proportionately subdivided or combined. 4.1.5 Options, Rights or Warrants. (a) The Corporation shall not make any offering of options, rights or warrants to subscribe for shares of Class A Common Stock. If the Corporation makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than Class A Common Stock) to all holders of a class of Common Stock, then the Corporation shall simultaneously make an identical offering to all holders of the other classes of Common Stock other than to any class of Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. All such options, rights or warrants offerings shall offer the respective holders of Class A Common Stock and Class B Common Stock the right to subscribe at the same rate per share. (b) Subject to Section 4.1.3(c) and 4.1.5(a), the Corporation shall have the power to create and issue, whether or not in connection with the issue and sale of any shares of stock or other securities of the Corporation, rights or options entitling the holders thereof to purchase from the Corporation any shares of its capital stock of any class or classes at the time authorized (other than Class A Common Stock), such rights or options to have such terms and conditions, and to be evidenced by or in such instrument or instruments, as shall be approved by the Board of Directors. B-24 <PAGE> 135 4.1.6 Mergers, Consolidation, Etc. In the event that the Corporation shall enter into any consolidation, merger, combination or other transaction in which shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then, and in such event, the shares of each class of Common Stock shall be exchanged for or changed into either (i) the same amount of stock, securities, cash and/or any other property, as the case may be, into which or for which each share of any other class of Common Stock is exchanged or changed; provided, however, that if shares of Common Stock are exchanged for or changed into shares of capital stock, such shares so exchanged for or changed into may differ to the extent and only to the extent that the Class A Common Stock and the Class B Common Stock differ as provided herein; or (ii) if holders of each class of Common Stock are to receive different distributions of stock, securities, cash and/or any other property, an amount of stock, securities, cash and/or property per share having a value, as determined by an independent investment banking firm of national reputation selected by the Board of Directors, equal to the value per share into which or for which each share of any other class of Common Stock is exchanged or changed. 4.1.7 Liquidation Rights. In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Corporation and after making provision for the holders of each series of Preferred Stock, if any, the remaining assets and funds of the Corporation, if any, shall be divided among and paid ratably to the holders of the shares of the Class A Common Stock and the Class B Common Stock treated as a single class. 4.1.8 No Preemptive Rights. Except as provided in Section 4.1.5 or Section 4.3.2, the holders of shares of Common Stock are not entitled to any preemptive right to subscribe for, purchase or receive any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. 4.1.9 Transfer of Class A Common Stock. (a) No person may, directly or indirectly, sell (whether by involuntary or judicial sale or otherwise), assign, transfer, grant a security interest in, pledge, encumber, hypothecate, give (by bequest, gift or appointment) or otherwise (voluntarily or by operation of law) dispose of (collectively, "Transfer") any interest in his, her or its shares of Class A Common Stock (or in any shares of Class A Common Stock held by such person for the benefit of or on the behalf of another person) (including, without limitation, the power to vote or provide a consent with respect to his, her or its shares of Class A Common Stock by proxy or otherwise, except for proxies given to any Class A Permitted Holder (as defined below) or to a person designated by the Board of Directors of the Corporation who is soliciting proxies on behalf of the Corporation), and the Corporation and the transfer agent for the Class A Common Stock, if any (the "Class A Transfer Agent"), shall not register the Transfer of such shares of Class A Common Stock, except to the Corporation or a Class A Permitted Holder; provided, however, such restrictions on transfer shall not apply to a merger, consolidation or business combination of the Corporation with or into another corporation pursuant to which all of the outstanding shares of each class of Common Stock and Preferred Stock of the Company is being acquired. Any transfer of Class A Common Stock in violation of this Section 4.1.9 shall be null and void ab initio, and the Corporation shall not register such Transfer. For purposes of this Amended and Restated Certificate of Incorporation, a "Class A Permitted Holder" shall include only the following persons: (i) each person who is at November 25, 1997 a holder of record of any share of Belk Company Common Stock (a "Record Holder") and his or her estate, guardian or conservator, (ii) each spouse of a Record Holder and his or her estate, guardian or conservator, (iii) each descendant of a Record Holder and his or her estate, guardian or conservator, (iv) each spouse of a descendant of a Record Holder and his or her estate, guardian or conservator (the Record Holder and the spouse, descendants and spouses of descendants of the Record Holder, and their respective estates, guardians and conservators being collectively referred to as a "Record Holder Family Group"), (v) each Record Holder Entity (hereinafter defined), (vi) each Record Holder Trust (hereinafter defined) and (vii) each Permitted Charitable Beneficiary (hereinafter defined). The term "Record Holder Entity" means any corporation, partnership, unincorporated association, firm, joint venture or other legal entity controlled by one or more members of a Record Holder Family Group. The term "Record Holder Trust" means any trust the primary beneficiaries of which are one or more members of a Record Holder Family Group and Permitted Charitable Beneficiaries. The term "Permitted Charitable Beneficiary" means any organization described in Sec- B-25 <PAGE> 136 tion 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), but only with respect to shares of Class A Common Stock or interests therein, including future interests, which such organization receives by gift, grant, bequest, devise or similar gratuitous transfer from one or more Class A Permitted Holders. For purposes of this Section 4.1, the primary beneficiaries of a trust will be deemed to be one or more members of a Record Holder Family Group and Permitted Charitable Beneficiaries if, under the maximum exercise of discretion by the trustees of such trust in favor of persons who are not members of the Record Holder Family Group and Permitted Charitable Beneficiaries, the value of the interest of such persons in the trust, computed actuarially, is 50% or less. The factors and methods prescribed in Section 7520 of the Code for use in ascertaining the value of certain interests shall be used in determining a beneficiary's actuarial interest in a trust for purposes of applying this Section 4.1. For purposes of this Section 4.1, the actuarial value of the interest in a trust of any person in whose favor a testamentary power of appointment may be exercised shall be deemed to be zero. (b) Notwithstanding anything to the contrary set forth herein, any Class A Permitted Holder may pledge his, her or its shares of Class A Common Stock to a financial institution pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledgee; provided that such shares shall remain subject to the provisions of this Section 4.1.9. In the event of foreclosure or other similar action by the pledgee, such pledged shares of Class A Common Stock may only be transferred to a Class A Permitted Holder or converted into shares of Class B Common Stock, as the pledgee may elect. (c) For purposes of Sections 4.1.9 and 4.1.10. (1) The relationship of any person that is derived by or through legal adoption shall be considered a natural relationship. (2) A minor for whom shares of Class A Common Stock are held pursuant to a Uniform Gifts to Minors Act or similar law shall be considered the Class A Permitted Holder and the custodian who is the Record Holder of such shares shall not be considered the Class A Permitted Holder of such shares. (3) An incompetent stockholder who is a Class A Permitted Holder but whose shares are owned or held by a guardian or conservator shall be considered the Class A Permitted Holder of such shares and such guardian or conservator who is the holder of such shares shall not be considered the Class A Permitted Holder of such shares. (4) Unless otherwise specified, the term "person" means and includes natural persons, corporations, partnerships, unincorporated associations, firms, joint ventures, trusts and all other entities. (5) The term "control" shall mean, with respect to any person, the following: (i) ownership, directly or indirectly, by such person of equity securities entitling it to exercise in the aggregate more than 50% of the voting power of the entity in question, or (ii) the possession by such person of the power, directly or indirectly (A) to elect a majority of the board of directors (or equivalent governing body) of the entity in question; or (B) to direct or cause the direction of the management and policies of or with respect to the entity in question, whether through ownership of securities, by contract or otherwise. (6) Except as provided in clauses (2) and (3) above, for purposes of determining whether the holder of a share of Class A Common Stock is a Class A Permitted Holder, the Record Holder of such share shall be considered the holder; provided, however, that if such Record Holder is a nominee, the holder for purposes of determining whether the holder of shares of Class A Common Stock is a Class A Permitted Holder shall be the first person in the chain of ownership of such share of Class A Common Stock who is not holding such share solely as a nominee. (7) Each certificate representing a share of Class A Common Stock shall be endorsed with a legend that states that shares of Class A Common Stock are not transferrable other than to certain transferees and are subject to certain restrictions as set forth in this Amended and Restated Certificate of Incorporation filed by the Corporation with the Secretary State of the State of Delaware. B-26 <PAGE> 137 (8) Notwithstanding anything to the contrary set forth herein, any holder of Class A Common Stock may transfer shares of Class A Common Stock to the underwriters of any public offering of Class A Common Stock by the Corporation pursuant to the terms of the underwriting agreement entered into by such holder of Class A Common Stock with respect to such public offering, and the ownership of shares of Class A Common Stock by such underwriters as a result of such transfer will not result in the conversion of the transferred shares of Class A Common Stock into shares of Class B Common Stock until the closing of such public offering, at which time such shares of Class A Common Stock shall automatically convert into shares of Class B Common Stock in accordance with Section 4.1.3. 4.1.10 Certain Automatic Conversions of Class A Common Stock. Subject to Section 4.1.9, at such time as a person ceases to be a Class A Permitted Holder, any and all shares of Class A Common Stock held by such person at such time shall automatically convert into shares of Class B Common Stock, provided that, no conversion shall occur upon the pledge of a Class A Permitted Holder's share of Class A Common Stock to a financial institution as contemplated by Section 4.1.9(b). 4.1.11 Restrictions on Issuance. The Corporation shall not issue or sell (x) any shares of Class A Common Stock or any securities (including, without limitation, any rights, options, warrants or other securities) convertible, exchangeable or exercisable into shares of Class A Common Stock to any person that is not a Class A Permitted Holder. Any issuance or sale of shares of Class A Common Stock (or securities convertible into, or exchangeable or exercisable for, shares of Class A Common Stock) in violation of this Section 4.1.11 shall be null and void ab initio. 4.2 Preferred Stock Provisions. 4.2.1 The Preferred Stock may be issued from time to time in one or more series. Subject to limitations prescribed by law and the provisions of this Amended and Restated Certificate of Incorporation or any amendment hereto, authority is expressly granted to the Board of Directors to authorize the issue of one or more series of Preferred Stock without any vote or other action by the stockholders of the Corporation (the "Stockholders"), and to fix by designation (the "Preferred Stock Designation") the voting powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof to the full extent now or hereafter permitted by law, including but not limited to the following: (a) The number of shares constituting that series and the distinctive designation of the series; (b) The dividend rate (or method of determining such rate) on the shares of that series, the conditions and dates upon which such dividends shall be payable, whether such dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series to the dividends payable on any other class or series of stock of the Corporation; (c) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (d) Whether or not the shares of that series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of stock of the Corporation, or convertible into or exchangeable for other securities of the Corporation or securities of any other corporation, partnership, or other person or entity, and, if so, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange; (e) Whether or not the shares of that series shall be redeemable, in whole or in part, at the option of the Corporation or at the option of the holder thereof or upon the happening of a specified event, and if so, the times, prices and other terms and conditions of such redemption; (f) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; B-27 <PAGE> 138 (g) The rights of the shares of that series in the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, with respect to payment of amounts payable in such event on shares of that series to amounts payable in such event on shares of any other class or series of stock of the Corporation; and (h) Any other relative rights, preferences and limitations of that series. 4.2.2 All shares of any one series of Preferred Stock shall be identical except as to dates of issue and the dates from which dividends on shares of the series issued on different dates shall accumulate (if cumulative). 4.2.3 If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets available for distribution to holders of shares of Preferred Stock of all series shall be insufficient to pay such holders the full preferential amount to which they are entitled, then such assets shall be distributed ratably among the shares of all series of Preferred Stock in accordance with the respective preferential amounts (including unpaid cumulative dividends, if any) payable with respect thereto. 4.3 Other Provisions. 4.3.1 Other than as provided in Section 4.1 the Board of Directors shall have authority to authorize the issuance from time to time without any vote or other action by the stockholders of the Corporation of any or all shares of stock of the Corporation of any class at any time authorized, and any securities convertible into or exchangeable for any such shares, in each case to such persons and for such consideration and on such terms as the Board of Directors from time to time in its discretion lawfully may determine; provided, however, that the consideration for the issuance of shares of stock of the Corporation having par value shall not be less than such par value. Shares so issued, for which the consideration has been paid to the Corporation, shall be fully paid, and the holders of such stock shall not be liable to any further call or assessments thereon. 4.3.2 No holder of stock of any class or series of the Corporation nor of any security convertible into or exchangeable for stock of any class or series of the Corporation, nor of any warrant, option or right to purchase, subscribe for or otherwise acquire stock of any class or series of the Corporation, whether now or hereafter authorized, shall, as such holder, have any preemptive right whatsoever to purchase, subscribe for or otherwise acquire stock of any class or series of the Corporation, or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of the Corporation, whether now or hereafter authorized. Nothing in this Section 4.3.2 shall be deemed to eliminate or limit the ability of the Corporation to grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of the Corporation or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of the Corporation, whether now or hereafter authorized. 4.3.3 The Board of Directors may set a record date in the manner and for the purposes authorized in the Bylaws of the Corporation with respect to shares of stock of the Corporation of any class or series. FIFTH: Meetings of Stockholders. 5.1 No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. 5.2 Special meetings of stockholders of the Corporation may only be called by the Chairman of the Board or by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the entire Board of Directors. 5.3 At a meeting of the stockholders of the Corporation, only such business shall be conducted which has been properly brought before the meeting. To be properly brought before a meeting of the stockholders, business must be (i) specified in the notice of meeting (or any supplement thereto) given by, or at the direction of, the Board of Directors or (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors or by a stockholder. For business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice of the business to the Secretary of the Corporation. To be timely, a stockholder's notice must be in writing delivered to or mailed, postage prepaid, and received by the Secretary not less than 60 days nor more than 90 days prior to the meeting; provided, however, that if less B-28 <PAGE> 139 than 70 days notice or prior public disclosure of the date of the meeting is given to stockholders, notice by the stockholder to be timely must be received by the Secretary not later than the close of business on the tenth day following the day on which notice of the date of the meeting was mailed or public disclosure was made. For each matter the stockholder proposes to bring before the meeting, the notice to the Secretary shall include (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting the business at the meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing the business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Corporation's Bylaws to the contrary, no business shall be conducted at the meeting except in accordance with the procedures set forth in this Section 5.3. The chairman of a meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 5.3. If the chairman determines that business was not properly brought before the meeting in accordance with the provisions of this Section 5.3, the business shall not be transacted. 5.4 Notwithstanding any other provisions of this Amended and Restated Certificate of Incorporation or any provision of law which might permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock of the Corporation required by law, this Amended and Restated Certificate of Incorporation or any amendment hereto or any Preferred Stock Designation, the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote on all matters submitted to the stockholders of the Corporation generally (the "Voting Stock"), voting together as a single class, shall be required to alter, amend, repeal, or adopt any provision inconsistent with this Article FIFTH. SIXTH: Court May Sanction Compromise or Arrangement with Creditors or Stockholders. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation, under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. SEVENTH: Existence. The Corporation is to have perpetual existence. EIGHTH: Board of Directors. 8.1 The Board of Directors of the Corporation shall be such number as is determined in accordance with the Amended and Restated Bylaws of the Corporation. The directors of the Corporation shall be evenly divided into three classes, designated as Class I, Class II and Class III. In the event that the number of directors shall not be evenly divisible by three, the Board of Directors shall determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director shall be three years; provided, however, that the term of office of all of the initial directors shall expire at the first annual meeting of the stockholders after the date of filing of this Amended and Restated Certificate of Incorporation (at which time the stockholders shall elect all of the directors in each of the three classes). The term of office of the directors in Class I elected at the first annual meeting shall expire at the second annual meeting of the stockholders after the date of filing of this Amended and Restated Certificate of Incorporation, the term of the office of the directors in Class II elected at the first annual meeting shall expire at the third annual meeting after the date of filing of this Amended and Restated Certificate of Incorporation, and the term of office of the directors in Class III elected at the first annual B-29 <PAGE> 140 meeting shall expire at the fourth annual meeting after the date of filing of this Amended and Restated Certificate of Incorporation. At each annual meeting after the first annual meeting of the stockholders after the date of filing of this Amended and Restated Certificate of Incorporation, directors of each class shall be elected for a full term of three years to succeed those whose terms expire. 8.2 Only persons who are nominated in accordance with the procedures set forth in this Section 8.2 shall be eligible for election as directors. Nominations for election to the Board of Directors of the Corporation at a meeting of stockholders may be made by the Board of Directors, on behalf of the Board of Directors by any nominating committee appointed by the Board of Directors, or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting. Nominations, other than those made by or on behalf of the Board of Directors, shall be made by notice in writing delivered to or mailed, postage prepaid, and received by the Secretary not less than 60 nor more than 90 days prior to any meeting of stockholders called for the election of directors; provided, however, that if less than 70 days notice or prior public disclosure of the date of the meeting is given to stockholders, the nomination must be received by the Secretary not later than the close of business on the tenth day following the day on which notice of the date of the meeting was mailed or public disclosure was made. The notice shall set forth: (i) the name and address, as they appear on the Corporation's books, of the stockholder who or which intends to make the nomination; (ii) the name, age, business address and, if known, residence address of each nominee; (iii) the principal occupation or employment of each nominee; (iv) the class and number of shares of stock of the Corporation which are beneficially owned by each nominee and by the nominating stockholder; (v) any other information concerning the nominee that must be disclosed of nominees in a proxy solicitation pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and (vi) the executed consent of each nominee to being named in the proxy statement for such proxy solicitation as a nominee, and to serve as a director of the Corporation, if elected. The chairman of the meeting of stockholders may, if the facts warrant, determine that a nomination was not made in accordance with the foregoing procedures, and if the chairman should so determine, the chairman shall so declare to the meeting and the defective nomination shall be disregarded. Nothing in this Section 8.2 shall be construed to affect the requirements for proxy statements of the Corporation under Regulation 14A of the Exchange Act. 8.3 Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the stockholders. Such a director shall hold office until the annual meeting of stockholders at which the term of office of the class to which they have been chosen expires, and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 8.4 Notwithstanding the foregoing Sections 8.1, 8.2 and 8.3 of this Article EIGHTH, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, (i) the election, filling of vacancies and other features of such directorships shall be governed by the terms of this Amended and Restated Certificate of Incorporation or the Preferred Stock Designation applicable to such class or series of Preferred Stock, (ii) the then authorized number of directors of the Corporation shall be increased by the number of additional directors to be elected, and (iii) the directors so elected shall serve a term which shall expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of this Amended and Restated Certificate of Incorporation or the Preferred Stock Designation applicable to such class or series. 8.5 Unless and except to the extent that the Bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot. 8.6 Notwithstanding any other provisions of this Amended and Restated Certificate of Incorporation or any provisions of law which might permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock of the Corporation required by law, this Amended B-30 <PAGE> 141 and Restated Certificate of Incorporation or any amendment hereto or any Preferred Stock Designation, the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to alter, amend, repeal, or adopt any provision inconsistent with this Article EIGHTH. 8.7 In furtherance, and not in limitation of the powers conferred on it by statute, the Board of Directors is expressly authorized: (a) to adopt, amend or repeal the Bylaws of the Corporation, subject to such restrictions upon the exercise of such power as may be imposed by this Amended and Restated Certificate of Incorporation or any amendment hereto; (b) to authorize and cause to be executed mortgages and liens upon the whole or any part of the real and personal property of the Corporation, without any action of or by the stockholders of the Corporation, except as otherwise provided by law; and (c) to set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose or to abolish any such reserve in the manner in which it was created. The Corporation may in its Bylaws confer powers upon its Board of Directors in addition to the foregoing, and in addition to the powers and authorities expressly conferred upon it by law. 8.8 The Board of Directors shall have power from time to time to fix and to determine and vary the amount of the working capital of the Corporation and to direct and determine the use and disposition of any surplus or net profits over and above the capital as determined pursuant to, and subject to, the provisions of the DGCL; and in its discretion the Board of Directors may use and apply any such surplus or accumulated profits in purchasing or acquiring bonds, debentures, notes, or other obligations or securities of the Corporation or shares of its own stock of any class so far as may be permitted by law, to such extent and in such manner and upon such terms as the Board of Directors shall deem expedient, but any such bonds, debentures, notes, obligations, securities or stock so purchased or acquired (together with any stock or securities acquired in satisfaction of a debt or otherwise) may be resold. Nothing, however, shall be held to limit the general power of the Corporation to apply any other funds or assets to the purchase or acquisition or retirement of its stock, bonds, debentures, notes or other obligations or securities. 8.9 The Board of Directors, subject to the applicable provisions of the Amended and Restated Bylaws and the DGCL, may from time to time determine whether and to what extent and at what times and places and under what conditions and regulations the accounts and books of the Corporation or any of them shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account book or document of the Corporation, except as conferred by law or as authorized by the Board of Directors. 8.10 The books of the Corporation may be kept within or without the State of Delaware at such place or places as may be designated from time to time by the Board of Directors. 8.11 The Board of Directors may determine, from time to time, the amount of compensation which shall be paid to its members. The Board of Directors shall also have power, in its discretion, to provide for and to pay directors rendering unusual or exceptional services to the Corporation special compensation appropriate to the value of such services as determined by the Board of Directors from time to time. 8.12 Subject to the rights of the holders of any series of Preferred Stock then outstanding to remove directors that the holders of such Preferred Stock were entitled to elect, a director of the Corporation may be removed only for cause. Such removal for cause may be effected only by the affirmative vote of all other Board members or the holders of at least 66 2/3% of the voting power of all of the then outstanding shares of Voting Stock, voting together as a single class. No director so removed may be reinstated so long as the cause for removal continues to exist. NINTH: Amendment of Certificate and Bylaws. 9.1 The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation in the manner now or hereafter prescribed by law, and all B-31 <PAGE> 142 rights conferred upon stockholders herein are granted subject to this reservation; provided; however, that the provisions of Section 4.1 may not be amended, altered, changed or repealed in any respect to a class of Common Stock unless such amendment, alteration, change or repeal is approved by such class of Common Stock voting as separate class. In addition, the preceding sentence of this Article 9 may not be amended, altered, changed or repealed in any respect unless such amendment, alteration, change or repeal is approved by each class of Common Stock voting as a separate class. 9.2 The Bylaws of the Corporation may not be amended except by a majority vote of the entire Board of Directors or such higher vote as may be required by the Amended and Restated Bylaws or by law, or the affirmative vote of the holders of at least two-third of the voting power of all of the then outstanding shares of Voting Stock, voting together as a single class. TENTH: Director Liability to Corporation. 10.1 No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty by such director as a director; provided, however, that this Article TENTH shall not eliminate or limit the liability of a director to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper financial benefit. No amendment or repeal of this Article TENTH shall apply to or have any effect on the liability or alleged liability of a director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. B-32 <PAGE> 143 EXHIBIT C TO PLAN AND AGREEMENT OF REORGANIZATION AMENDED AND RESTATED BYLAWS OF BELK, INC. ARTICLE I STOCKHOLDERS Section 1. Annual Meeting. The annual meeting of the stockholders of Belk, Inc. (the "Corporation") for the election of directors of the Corporation and for the transaction of such other business as may properly come before the meeting shall be held at such place, either within or without the State of Delaware, on such date and at such time as the Board of Directors may by resolution provide. The Board of Directors may specify by resolution prior to any special meeting of stockholders held within the year that such meeting shall be in lieu of the annual meeting. Section 2. Special Meetings. Special meetings of the stockholders of the Corporation may only be called at any time by the Chairman of the Board or by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the entire Board of Directors. Special meetings shall be held at such place, either within or without the State of Delaware, as is stated in the call and notice thereof. Such notice shall also state the purpose or purposes of the proposed meeting. Section 3. Notice of Meetings. (a) Unless otherwise provided by law, whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting stating the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten, nor more than sixty, days prior to such meeting to each stockholder entitled to vote at the meeting. If mailed, such notice shall be deemed to be given when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Whenever notice is required to be given to any stockholder, a written waiver thereof, signed by the stockholder entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance at a meeting shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business transacted at, nor the purpose of, any regular or special meeting need be stated in the written waiver of notice of such meeting. (b) Notice of any meeting may be given by or at the direction of the Chairman, the President, the Secretary or the Board of Directors. No notice need be given of the time and place of reconvening of any adjourned meeting if the time and place to which the meeting is adjourned are announced at the adjourned meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 4. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of each stockholder and the class and number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who or which is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of B-33 <PAGE> 144 stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of the stockholders. Section 5. Quorum; Required Stockholder Vote. Except as otherwise provided by the Certificate of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to (i) ten votes for each share of Class A Stock held by such stockholder that has voting power upon the matter in question and (ii) one vote for each share of Class B Stock held by such stockholder that has voting power upon the matter in question. A quorum for the transaction of business at any annual or special meeting of stockholders shall exist when the holders of the outstanding shares of both classes taken together entitled to vote and constituting a majority of the total votes are represented either in person or by proxy at such meeting. In all matters other than the election of directors, the affirmative vote of the shares of both classes taken together present in person or represented by proxy and constituting a majority of the total votes present and entitled to be cast at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the Amended and Restated Certificate of Incorporation or by these Amended and Restated Bylaws. Directors shall be elected by the affirmative vote of a plurality of the votes represented by the shares of both classes taken together present in person or represented by proxy at the meeting and entitled to vote on the election of directors. When a quorum is once present to organize a meeting, the stockholders present may continue to do business at the meeting or at any adjournment thereof notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. Section 6. Proxies. A stockholder may vote either in person or by a proxy which such stockholder has duly executed in writing. No proxy shall be valid after three years from the date of its execution unless a longer period is expressly provided in the proxy. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Section 7. Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, or in his absence by the President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 8. Record Date. In order that the Corporation may determine stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for any other lawful purpose, the Board of Directors of the Corporation may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (a) in the case of the determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall not be more than sixty nor less than ten days before the date of such meeting; and (b) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (x) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (y) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. B-34 <PAGE> 145 Section 9. Report of Business. At each annual stockholders' meeting, one of the officers of the Corporation shall submit a statement of the business done during the preceding year, together with a report of the general financial condition of the Corporation and of the condition of its tangible property. ARTICLE II DIRECTORS Section 1. Power of Directors. The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors. In addition to the authority and powers conferred upon the Board of Directors of the Corporation by the Delaware General Corporation Law, the Amended and Restated Certificate of Incorporation and these Amended and Restated Bylaws, the Board of Directors is hereby authorized and empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject to the provisions of the General Corporation Law, the Amended and Restated Certificate of Incorporation and these Amended and Restated Bylaws. Section 2. Composition of the Board. (a) The number of directors that shall constitute the Board of Directors of the Corporation shall not be less than two nor more than eighteen, as shall be determined from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Board then in office. (b) The directors shall be divided into three classes and shall serve such terms of office as provided in the Amended and Restated Certificate of Incorporation. (c) A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. (d) At each annual election, the directors chosen to succeed those whose terms then expire shall be of the same class as the directors they succeed, unless, by reason of any intervening changes in the authorized number of directors, the Board of Directors of the Corporation shall designate one or more directorships whose term then expires as directorships of another class in order more nearly to achieve equality of number of directors among the classes. (e) Notwithstanding the requirement of the Amended and Restated Certificate of Incorporation that the directors be evenly divided into three classes, in the event of any change in the authorized number of directors, each director then continuing to serve as such shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term, or his prior death, resignation, disqualification or removal. If any newly created directorship may, consistent with the requirement of the Amended and Restated Certificate of Incorporation that the directors be evenly divided into three classes, be allocated to one or more classes, the Board of Directors of the Corporation shall allocate it to that of the available classes whose terms of office are due to expire at the earliest date following such allocation. Section 3. Meetings of the Board; Notice of Meetings; Waiver of Notice. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine, and if so determined, notices thereof need not be given. Special meetings of the Board of Directors may be held at such places within or without the State of Delaware and may be called by the Chairman, the President or a majority of the entire Board of Directors. Written notice of the time and place of such special meetings shall be given to each director by the persons calling such meeting by first class or registered mail at least four days before the meeting or by telephone, telecopy or in person at least one day before the meeting. Whenever notice is required to be given to any director, a written waiver thereof, signed by such director, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance at a meeting shall constitute a waiver of any required notice of such meeting, except when the director attends such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or B-35 <PAGE> 146 convened. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be stated in the notice or waiver of notice of such meeting. Section 4. Quorum; Vote Requirement. A majority of the directors then in office shall constitute a quorum for the transaction of business at any meeting. When a quorum is present, the vote of a majority of the directors present shall be the act of the Board of Directors, unless a greater vote is required by law, by the Amended and Restated Certificate of Incorporation, by these Amended and Restated Bylaws or by a resolution of the Board of Directors. Section 5. Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, or in his absence by a President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 6. Action of Board Without Meeting. Any action required or permitted to be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting if a written consent, setting forth the action so taken, is signed by all the directors or committee members and filed with the minutes of the proceedings of the Board of Directors or committee. Such consent shall have the same force and effect as a unanimous affirmative vote of the Board of Directors or committee, as the case may be. Section 7. Conference Telephone Meetings. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board or any such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 8. Committees. The Board of Directors, by resolution passed by a majority of all of the directors, may designate one or more committees, each committee to consist of one or more of the directors. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the power and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided that no committee shall have the power or authority of the Board of Directors in reference to (a) amending the Amended and Restated Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the Delaware General Corporation Law fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), (b) adopting an agreement of merger or consolidation under Sections 251 or 252 of the Delaware General Corporation Law, (c) recommending to the stockholders the sale, lease or exchange of all or substantially all of the property and assets of the Corporation, (d) recommending to the stockholders a dissolution of the Corporation or a revocation thereof, or (e) amending these Amended and Restated Bylaws. In addition, unless the resolution of the Board of Directors or the Amended and Restated Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. Unless the Board of Directors otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules, each committee shall B-36 <PAGE> 147 conduct its business in the same manner as the Board of Directors conducts its business pursuant to this Article II. Section 9. Compensation. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board, a specific sum fixed by the Board plus expenses may be allowed for attendance at each regular or special meeting of the Board and a quarterly or annual fixed fee may be allowed; provided, however, that nothing herein contained shall be construed to preclude any director from serving the Corporation or any parent or subsidiary corporation thereof in any other capacity and receiving compensation therefor. ARTICLE III OFFICERS Section 1. Executive Structure. The officers of the Corporation shall be a Chairman of the Board of Directors, one or more Vice Chairmen, one or more Presidents, one or more Vice Presidents who may be designated an Executive Vice President or Senior Vice President, a Secretary, a Treasurer and such Assistant Secretaries and Assistant Treasurers as the Board of Directors may from time to time deem advisable, and such other officers as the Board of Directors may from time to time deem advisable and designate. Any two of said offices may be held by one person except the office of President and Vice President. Section 2. (a) The Chairman of the Board. The Chairman of the Board, who shall be chosen from among the Directors, shall be the Chief Executive Officer of the Corporation and shall have the general powers and duties of supervision and management of the business of the Corporation, shall preside at all meetings of the Board of Directors if present, and shall, in general, perform all duties incident to the office of Chairman of the Board and such other duties as, from time to time, may be assigned to him by the Board of Directors. (b) Vice Chairman of the Board. Each Vice Chairman of the Board shall perform such duties as may be prescribed by the Chairman and the Board of Directors from time to time. Section 3. The Presidents. The Presidents shall have active executive management of various operational functions of the Corporation subject, however, to the control of the Chairman, the Board of Directors and the stockholders. They shall, in general, perform such duties as may be assigned by the Chairman, Board of Directors and the stockholders. Section 4. The Vice Presidents. Each Vice President shall have such powers and perform such duties as the Board of Directors may from time to time prescribe or as the Chairman or any President may from time to time delegate. Section 5. The Secretary. The Secretary shall keep or cause to be kept in books provided for that purpose the minutes of the meetings of the stockholders and of the Board of Directors; shall see that all notices are duly given in accordance with the provisions of these Amended and Restated By-Laws and as required by law; shall be custodian of the records and of the seal of the Corporation and see that the seal is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these Amended and Restated By-Laws; and, in general, shall perform all duties incident to the office of Secretary and such other duties as may, from time to time, be assigned to him by the Board of Directors or by the Chairman. The Assistant Secretaries. Each Assistant Secretary (if one or more Assistant Secretaries be elected or appointed) shall assist the Secretary in his duties, and shall perform such other duties as the Board of Directors may from time to time prescribe or the Chairman may from time to time delegate to him. At the request of the Secretary, any Assistant Secretary may, in the case of the absence or inability to act as the Secretary, temporarily act in his place. In the case of the death of the Secretary, or in the case of his absence or inability to act without having designated an Assistant Secretary to act temporarily in his place, the Assistant Secretary so to perform the duties of the Secretary shall be designated by the Chairman. B-37 <PAGE> 148 The Treasurer. The Treasurer shall have charge and custody of and be responsible for, all funds of the Corporation, and shall deposit all such funds in the name of the Corporation in such banks, trust companies or other depositories as shall be selected by the Board of Directors; shall receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; and, in general, shall perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors or by the Chairman. The Treasurer shall render to the Chairman and the Board of Directors, whenever the same shall be required, an account of all his transactions as Treasurer and of the financial condition of the Corporation. He shall, if required so to do by the Board of Directors, give the Corporation a bond in such amount and with such surety or sureties as may be ordered by the Board of Directors, for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. The Assistant Treasurers. Each Assistant Treasurer (if one or more Assistant Treasurers be elected or appointed) shall assist the Treasurer in his duties, and shall perform such other duties as the Board of Directors may from time to time prescribe or the Chairman may from time to time delegate to him. At the request of the Treasurer, any Assistant Treasurer may, in the case of the absence or inability to act as the Treasurer, temporarily act in his place. In the case of the death of the Treasurer, or in the case of his absence or inability to act without having designated an Assistant Treasurer to act temporarily in his place, the Assistant Treasurer to perform the duties of the Treasurer shall be designated by the Chairman. Each Assistant Treasurer shall, if required to do so by the Board of Directors, give the Corporation a bond in such amount and with such surety or sureties as may be ordered by the Board of Directors, for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 6. Resignations; Removal; Vacancies. Any officer may resign at any time upon written notice to the Corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. Any vacancy occurring in any office of the Corporation by reason of death, resignation, removal or otherwise may be filled by the Board of Directors at any regular or special meeting. Section 7. Compensation. The salaries of the officers shall be fixed from time to time by the Board of Directors, by a Committee of the Board or by any officer the Board designates. No officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director of the Corporation. ARTICLE IV STOCK Section 1. Stock Certificates. Certificates representing shares of stock of the Corporation shall be in such form as may be approved by the Board of Directors, which certificates shall be issued to stockholders of the Corporation in numerical order from the stock book of the Corporation, and each of which shall bear the name of the stockholder, the class and number of shares represented, and the date of issue; and which shall be signed by the Chairman, the President or a Vice President and the Secretary or an Assistant Secretary of the Corporation or any other officer authorized to sign by the Board of Directors; and which shall be sealed with the seal of the Corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 2. Transfer of Stock. Shares of stock of the Corporation shall be transferred only on the books of the Corporation upon surrender to the Corporation of the certificate or certificates representing the shares to be transferred accompanied by an assignment in writing of such shares properly executed by the stockholder of B-38 <PAGE> 149 record or such stockholder's duly authorized attorney-in-fact and with all taxes on the transfer having been paid. The Corporation may refuse any requested transfer until furnished evidence satisfactory to it that such transfer is proper. The Board of Directors may make such additional rules concerning the issuance, transfer and registration of stock as it shall so determine. Transfers of shares of stock of the Corporation shall in all cases comply with the Amended and Restated Certificate of Incorporation. Section 3. Stock Ledger. A record shall be kept by the Secretary or by any other officer, employee or agent designated by the Board of Directors, of the name of each person, firm or corporation holding capital stock of the Corporation, the class and number of shares represented by, and the respective dates of, each certificate for such capital stock, and in case of cancellation of any such certificate, the respective dates of cancellation. Section 4. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. Section 5. Registered Stockholders. The Corporation may deem and treat the holder of record of any stock as the absolute owner for all purposes and shall not be required to take any notice of any right or claim of right of any other person, except as otherwise provided in the Amended and Restated Certificate of Incorporation. ARTICLE V DEPOSITORIES AND SEAL Section 1. Depositories. All funds of the Corporation shall be deposited in the name of the Corporation in such bank, banks, or other financial institutions as the Board of Directors may from time to time designate and shall be drawn out on checks, drafts or other orders signed on behalf of the Corporation by such person or persons as the Board of Directors may from time to time designate. Section 2. Seal. The Board of Directors may, in its discretion, provide for a suitable seal, which seal shall be in the charge of the Secretary. ARTICLE VI INDEMNIFICATION Section 1. Indemnification. (a) Actions Other Than Those by or in the Right of the Corporation. (i) Subject to Section 1(d) of this Article VI, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation (or such other corporation or organization), and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. (ii) Subject to Section 1(d) of this Article VI, the Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as an director, officer, employee or agent of another corporation, B-39 <PAGE> 150 partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation (or such other corporation or organization), and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. (iii) The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that such person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (b) Action by or in the Right of the Corporation. (i) Subject to Section 1(d) of this Article VI, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation (or such other corporation or organization) and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation (or such other corporation or organization) unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (ii) Subject to Section 1(d) of this Article VI, the Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation (or such other corporation or organization) and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation (or such other corporation or organization) unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (c) Successful Defense of Action. Notwithstanding, and without limitation of, any other provision of this Article VI, to the extent that a director, officer, employee or agent or former director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraph (a) or (b) of this Section 1, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. (d) Determination Required. Any indemnification under paragraph (a) or (b) of this Section 1 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent or former director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in said paragraph. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who are not or were not parties to the particular action, suit B-40 <PAGE> 151 or proceeding, (ii) if such a quorum is not obtainable, by majority vote of a committee designated by the Board of Directors consisting only of directors who are not or were not parties to the particular action, suit or proceeding, (iii) by independent legal counsel in a written opinion, or (iv) by the stockholders. (e) Advances. Expenses (including attorney's fees) incurred by a director, officer, employee or agent or former director, officer, employee or agent in defending or investigating any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent or former director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article. The right provided in the first sentence of this Section 1(e) is a contract right. Section 2. Insurance. The Corporation may, when authorized by the Board of Directors, purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would be required to indemnify such person against such liability under the provisions of Section 1. The risks insured under any insurance policies purchased and maintained on behalf of any person as aforesaid or on behalf of the Corporation shall not be limited in any way by the terms of this Article VI and to the extent compatible with the provisions of such policies, the risks insured shall extend to the fullest extent permitted by law, common or statutory. Section 3. Nonexclusivity; Duration. The indemnification, rights, and limitations of liability provided by this Article VI shall not be deemed exclusive of any other indemnification, rights or limitations of liability to which any person may be entitled under the Amended and Restated Certificate of Incorporation, these Amended and Restated Bylaws or any agreement, vote of stockholders or disinterested directors, or otherwise, either as to action in such person's official capacity or as to action in another capacity while holding office, and they shall continue although such person has ceased to be a director, officer, employee or agent and shall inure to the benefit of such person's heirs, executors and administrators. The authorization to purchase and maintain insurance set forth in Section 2 of this Article VI shall likewise not be deemed exclusive. Section 4. Other Indemnification. The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan, enterprise or non-profit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, employee benefit plan, enterprise or non-profit entity. Section 5. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article VI shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. Section 6. Certain Definitions. For purposes of this Article VI, the reference to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VI. ARTICLE VII AMENDMENT OF BYLAWS These Amended and Restated Bylaws may be altered, amended or repealed only as specified in the Amended and Restated Certificate of Incorporation. B-41 <PAGE> 152 EXHIBIT D TO PLAN AND AGREEMENT OF REORGANIZATION DIRECTORS OF NEW BELK John M. Belk, Chairman Sarah Belk Gambrell Thomas M. Belk, Jr. H. W. McKay Belk John R. Belk David B. Cannon J. Kirk Glenn, Jr. Karl G. Hudson, Jr. John A. Kuhne B. Frank Matthews, II B-42 <PAGE> 153 ANNEX C SHARES OF NEW BELK CLASS A COMMON STOCK ALLOCATED TO EACH EXISTING BELK SHAREHOLDER <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> Saralee Griffeth Abbitt...................... 303 0.000505% Christine M. Anderson........................ 893 0.001488% Evelyn M. Anderson........................... 40,202 0.067003% Julia Whitney Austin......................... 75 0.000125% Frances Hensdale Autry....................... 57,286 0.095477% Judith A. Azzara............................. 28 0.000047% Vincent A. Azzara............................ 28 0.000047% Elizabeth K. Baker........................... 112,061 0.186768% Giles Patterson Corey Baker.................. 82 0.000137% Greenville Banks, Jr......................... 1,262 0.002103% Zuma Deon Lindsey Banks...................... 15,760 0.026267% A. Neil Bare................................. 25,630 0.042717% Cheryl A. Beaman............................. 373 0.000622% John Edward Beaman, Jr....................... 55,932 0.093220% Michael Hudson Beaman........................ 373 0.000622% Virginia Hudson Beaman....................... 120,944 0.201573% William Stuart Beaman........................ 373 0.000622% T. L. Beckham................................ 111 0.000185% Martha B. Beery.............................. 20,634 0.034390% W. B. Beery, III............................. 315,891 0.526485% William B. Beery, III and Martha B. Beery Irrevocable Trust.......................... 187,583 0.312638% Thomas M. Belk, Jr., Custodian for Adelaide Lucinda Fortune Belk under the N.C. Uniform Gifts to Minors Act........................ 34,576 0.057627% Thomas M. Belk, Jr., Custodian for Adelaide Lucinda Fortune Belk under the N.C. Uniform Transfers to Minors Act.................... 33,220 0.055367% Thomas M. Belk, as Custodian, or Katherine M. Belk or Katherine Belk Morris, as substitute custodian in the order named, for Adelaide Lucinda Fortune Belk under NC UTTMA...................................... 40,437 0.067395% Paul H. Belk, Custodian for Andrew Paul Belk under the N.C. Uniform Transfers to Minors Act........................................ 506 0.000843% Ann Everett Belk............................. 18 0.000030% John R. Belk, Custodian for Anna Dupree Belk under the N.C. Uniform Gifts to Minors Act........................................ 35,860 0.059767% John R. Belk, Custodian for Anna Dupree Belk under the N.C. Uniform Transfers to Minors Act........................................ 31,179 0.051965% Thomas M. Belk, as Custodian, or Katherine M. Belk or H. W. McKay Belk, as substitute custodian in the order named, for Anna Dupree Belk, under NC UTTMA................ 53,172 0.088620% James Herschel Belk, Custodian for Bruce Henderson Belk under the Georgia Uniform Gifts to Minors Act........................ 1,955 0.003258% </TABLE> C-1 <PAGE> 154 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> James Herschel Belk, Custodian for Bruce Henderson Belk under the Georgia Uniform Transfers to Minors Act.................... 5,271 0.008785% Henderson Belk, as Custodian, or Paul H. Belk or Sue Hadley Nichols, as substitute custodian in the order named, for Bruce Henderson Belk, under NC UTTMA............. 10,744 0.017907% Thomas E. Belk, Custodian for Caroline Mason Belk under the N.C. Uniform Transfers to Minors Act................................. 4,268 0.007113% Claudia Watkins Belk Grantor Trust dated 2/23/96.................................... 6,549 0.010915% Wachovia Bank & Trust Company, N. A., et al, Trustees U/A dated 12/29/76 with John M. Belk f/b/o Claudia W. Belk................. 636,130 1.060217% Donnie Henderson Belk........................ 9,223 0.015372% John R. Belk, Custodian for Frances Whitner Belk under the N.C. Uniform Transfers to Minors Act................................. 49,582 0.082637% Thomas M. Belk, as Custodian, or Katherine M. Belk or H. W. McKay Belk, as substitute custodian in the order named, for Frances Whitner Belk, under NC UTTMA............... 33,009 0.055015% Henderson Belk, as Custodian, or Paul H. Belk or Sue Hadley Nichols, as substitute custodian in the order named, for Hadley Elizabeth Belk, under NC UTTMA............. 8,581 0.014302% H. W. McKay Belk............................. 81,255 0.135425% H.W. McKay Belk, Trustee U/A dated 2/1/94.... 951,033 1.585055% H. W. McKay Belk, Custodian for Hamilton Witherspoon McKay Belk, Jr. under the N.C. Uniform Gifts to Minors Act................ 36,281 0.060468% H. W. McKay Belk, Custodian for Hamilton Witherspoon McKay Belk, Jr. under the N.C. Uniform Transfers to Minors Act............ 31,247 0.052078% Thomas M. Belk, as Custodian, or Thomas M. Belk, Jr. or John R. Belk, as substitute custodian in the order named, for Hamilton W. McKay Belk, Jr., under NC UTTMA......... 35,028 0.058380% Henderson Belk............................... 11,823 0.019705% Tr. u/w Mary I. Belk f/b/o Henderson Belk, et al......................................... 287,629 0.479382% Trustees u/w W. H. Belk for the benefit of Henderson Belk, et al...................... 225,555 0.375925% James H. Belk Revocable Trust dated 2/15/96.................................... 188,940 0.314900% James Herschel Belk, Custodian for James Herschel Belk, Jr. under the Georgia Uniform Gifts to Minors Act................ 4,851 0.008085% James Herschel Belk, Custodian for James Herschel Belk, Jr. under the Georgia Uniform Transfers to Minors Act............ 5,271 0.008785% Henderson Belk, as Custodian, or Paul H. Belk or Sue Hadley Nichols, as substitute custodian in the order named, for James Herschel Belk, Jr., under NC UTTMA......... 10,744 0.017907% Thomas E. Belk, Custodian for Joanne Everett Belk under the N.C. Uniform Transfers to Minors Act................................. 4,308 0.007180% </TABLE> C-2 <PAGE> 155 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> John M. Belk and Claudia W. Belk, Trustees under Agreement dated December 10, 1987.... 7,937,702 13.229503% Tr. u/w Mary I. Belk f/b/o John M. Belk, et al......................................... 288,943 0.481572% Trustees u/w W. H. Belk for the benefit of John M. Belk, et al........................ 225,555 0.375925% John R. Belk................................. 46,064 0.076773% John Robert Belk, Trustee U/A dated 1/17/94.................................... 989,755 1.649591% John R. Belk, Custodian for John Robert Belk, Jr. under the N.C. Uniform Gifts to Minors Act........................................ 34,990 0.058317% John R. Belk, Custodian for John Robert Belk, Jr. under the N.C. Uniform Transfers to Minors Act................................. 33,910 0.056517% Thomas M. Belk, as Custodian, or Katherine M. Belk or H. W. McKay Belk, as substitute custodian in the order named, for John Robert Belk, Jr., under NC UTTMA........... 53,917 0.089862% H. W. McKay Belk, Custodian for John Wilson Belk under the N.C. Uniform Transfers to Minors Act................................. 5,640 0.009400% Thomas M. Belk, as Custodian, or Thomas M. Belk, Jr. or John R. Belk, as substitute custodian in the order named, for John Wilson Belk, under NC UTTMA................ 2,102 0.003503% Karen H. Belk................................ 20,251 0.033752% Katherine McKay Belk,Trustee U/A dated October 12, 1993........................... 953,045 1.588408% Thomas M. Belk, Jr., Custodian for Katherine McKay Belk under the N.C. Uniform Gifts to Minors Act................................. 38,779 0.064632% Thomas M. Belk, Jr., Custodian for Katherine McKay Belk under the N.C. Uniform Transfers to Minors Act.............................. 30,400 0.050667% Thomas M. Belk, as Custodian, or Katherine M. Belk or Katherine Belk Morris, as substitute custodian in the order named, for Katherine McKay Belk, under NC UTTMA... 34,532 0.057553% H. W. McKay Belk, Custodian for Katherine Whitner Belk under the N.C. Uniform Gifts to Minors Act.............................. 34,576 0.057627% H. W. McKay Belk, Custodian for Katherine Whitner Belk under the N.C. Uniform Transfers to Minors Act.................... 29,854 0.049757% Thomas M. Belk, Jr., as Custodian, or Thomas M. Belk, Jr. or John R. Belk, as substitute custodian in the order named, for Katherine Whitner Belk, under NC UTTMA............... 36,611 0.061018% Kimberly D. Belk............................. 19,883 0.033138% Paul H. Belk, Custodian for Laura Cecelia Belk under the N.C. Uniform Transfers to Minors Act................................. 506 0.000843% Thomas M. Belk, Jr., Custodian for Margaret Elizabeth Belk under the N.C. Uniform Transfers to Minors Act.................... 11,805 0.019675% </TABLE> C-3 <PAGE> 156 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> Thomas M. Belk, as Custodian, or Katherine M. Belk or Katherine Belk Morris, as substitute custodian in the order named, for Margaret Elizabeth Belk, under NC UTTMA...................................... 32,973 0.054955% Mary Claudia Belk Irrevocable Trust dated 1/4/94..................................... 102,089 0.170148% Claudia W. Belk, Tr. u/a f/b/o Mary Claudia Belk....................................... 21,863 0.036438% Wachovia Bank & Trust Company, N. A., et al, Trustees U/A dated 12/29/76 with John M. Belk f/b/o Mary Claudia Belk............... 701,691 1.169485% H. W. McKay Belk, Custodian for Nina Cabell Belk under the N.C. Uniform Gifts to Minors Act........................................ 40,596 0.067660% H. W. McKay Belk, Custodian for Nina Cabell Belk under the N.C. Uniform Transfers to Minors Act................................. 27,803 0.046338% Thomas M. Belk, as Custodian, or Thomas M. Belk, Jr. or John R. Belk, as substitute custodian in the order named, for Nina Cabell Belk, under NC UTTMA................ 34,874 0.058123% Nina F. Belk................................. 23,332 0.038887% Pamela H. Belk............................... 1,104 0.001840% Paul H. Belk, Custodian for Patrick Joseph Belk under the N.C. Uniform Gifts to Minors Act........................................ 7,726 0.012877% Paul Henderson Belk.......................... 351,749 0.586248% Sarah F. Belk................................ 21,873 0.036455% Sarah Margaret Belk.......................... 49,158 0.081930% Thomas Joel Belk............................. 6,822 0.011370% Thomas M. Belk, Trustee U/A dated September 15, 1993................................... 4,241,832 7.069719% Tr. u/w Mary I. Belk f/b/o Thomas M. Belk, et al......................................... 288,068 0.480113% Trustees u/w W. H. Belk for the benefit of Thomas M. Belk, et al...................... 225,555 0.375925% Thomas Milburn Belk, Jr. .................... 139,017 0.231695% Thomas M. Belk, Jr., Trustee U/A dated 1/18/94.................................... 885,311 1.475518% Thomas M. Belk, Jr., Custodian for Thomas Milburn Belk, III under the N.C. Uniform Gifts to Minors Act........................ 36,281 0.060468% Thomas M. Belk, Jr., Custodian for Thomas Milburn Belk, III under the N.C. Uniform Transfers to Minors Act.................... 33,657 0.056095% Thomas M. Belk, as Custodian, or Katherine M. Belk or Katherine Belk Morris, as substitute custodian in the order named, for Thomas Milburn Belk, III, under NC UTTMA...................................... 35,090 0.058483% H. W. McKay Belk, Custodian for William Daniel Belk under the N.C. Uniform Transfers to Minors Act.................... 12,790 0.021317% Thomas M. Belk, as Custodian, or Thomas M. Belk, Jr. or John R. Belk, as substitute custodian in the order named, for William Daniel Belk, under NC UTTMA................ 27,667 0.046112% Tr. u/w Mary I. Belk f/b/o W. H. Belk, Jr., et al...................................... 285,389 0.475648% </TABLE> C-4 <PAGE> 157 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> Trustees u/w W. H. Belk for the benefit of W. H. Belk, Jr., et al........................ 225,555 0.375925% William Henry Belk, III...................... 268 0.000447% W. H. Belk, III and Diane Belk, Co-trustees U/A dated 2/8/88........................... 25,300 0.042167% The Belk Foundation, Paul B. Wyche, Jr., Trustee.................................... 18,807 0.031345% William A. Benninghoff....................... 7,238 0.012063% William Allan Benninghoff, Sr. and Shirley R. Benninghoff, Tenants in Common............. 6,704 0.011173% Betty Jane Benton............................ 3,190 0.005317% Olivia Benton................................ 907 0.001512% Byron L. Bergren............................. 1,137 0.001895% Alfred F. Bischoff, Jr....................... 1,950 0.003250% Kenneth H. Bishop............................ 6,655 0.011092% Fred M. Blackmon............................. 11,186 0.018643% Andrew Hoyt Borland, Jr...................... 39,935 0.066558% J. C. Bradford & Co.......................... 28 0.000047% Winona B. Bradham............................ 48,200 0.080333% Bob Bratton, Jr. and Deborah Ann Bratton, his wife, as joint tenants with right of survivorship............................... 8,027 0.013378% Eleanor Riggins Brawley...................... 6,430 0.010717% Rowland Brazzeal............................. 5,464 0.009107% Lou Jones Bristow............................ 1,997 0.003328% R. Tildon Brittle............................ 57 0.000095% Hugh Wilson Broome, III...................... 26,629 0.044382% Mary Alice Broome............................ 26,686 0.044477% Brothers Investment Company.................. 1,484,208 2.473680% Martha Riggins Brown......................... 6,095 0.010158% Susan W. Brubaker............................ 21,026 0.035043% Betty F. Buchanan............................ 426 0.000710% Kenneth D. Bufford........................... 168 0.000280% Charles Scott Burford........................ 869 0.001448% Jesse Paul Burford, III...................... 869 0.001448% Guy L. Byerly, Jr............................ 20,883 0.034805% David Belk Cannon............................ 1,886,023 3.143371% Residuary Trust u/w of Mrs. Henry Belk Cannon..................................... 651,185 1.085308% Ruth Stowe Carter............................ 4,940 0.008233% Pamela Franklin Carver....................... 480 0.000800% David H. Cathcart............................ 114 0.000190% Jon Christopher Champion..................... 359 0.000598% Joseph J. Chesson............................ 158 0.000263% Doris T. Clappier............................ 20,217 0.033695% Valda Kathleen Collier....................... 875 0.001458% Walter C. Cornwell and Fon F. Cornwell, Co- Trustees under the Walter and Fon Cornwell Living Trust, dated July 17, 1997.......... 22,830 0.038050% Belinda Howard Corpening..................... 4,464 0.007440% Charles G. Couch, Jr......................... 62,143 0.103572% </TABLE> C-5 <PAGE> 158 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> Margaret Parks Cowan......................... 71,014 0.118357% Nancy Hudson Cox............................. 23,137 0.038562% Andrew S. Coxe, II........................... 1,748 0.002913% Betty White Crandall......................... 12,017 0.020028% Dorothy Anne Cumbey.......................... 866 0.001443% NCNB National Bank of North Carolina, Trustee U/A 7/9/65 -- Sadie Belk Cummings, Grantor.................................... 687,043 1.145072% Oscar Douglas Davis, Jr...................... 1,430 0.002383% Caroline T. Davis, Custodian of Suzanne Marie Davis, a minor, under the Florida Uniform Transfers to Minors Act.................... 1,069 0.001782% Suzanne M. Dedrick........................... 11,533 0.019222% Louise Barrett Derr.......................... 1,839 0.003065% JoAnn F. Dollar.............................. 39 0.000065% William Gary Dommisse as Trustee under Item IV of the Will of Marvin J. Dommisse, deceased................................... 20 0.000033% James H. Doughton............................ 19,025 0.031708% NationsBank as Trustee for the Robert L. Doughton II Revocable Trust dtd 3/25/97.... 63,537 0.105895% Daisy Doughton Lange and North Carolina National Bank, Trustees for Robert L. Doughton, II under Agreement dated July 21, 1965 -- Johny Belk Blackmon, Grantor....... 706,584 1.177640% North Carolina National Bank, Successor Trustee u/w J. Horton Doughton for Virginia D. P. Doughton............................. 40,173 0.066955% George W. Dowdy, Jr. ........................ 386 0.000643% Sterling Dunlap.............................. 773 0.001288% Claud L. Efird, Jr. ......................... 1,748 0.002913% S. C. Elliott................................ 4,798 0.007997% Pauline T. Ellis, Trustee U/A dated 3/28/89.................................... 15,805 0.026342% William David Ellis.......................... 115,126 0.191877% W. David Ellis, Custodian for Andrew William Ellis under the S. C. Uniform Transfers to Minors Act................................. 7,797 0.012995% W. D. Ellis, Trustee for Andrew William Ellis U/A dated February 27, 1986................ 5,480 0.009133% W. David Ellis, Custodian for Zachary David Ellis under the S. C. Uniform Transfers to Minors Act................................. 7,797 0.012995% W. D. Ellis, Trustee for Zachary Ellis U/A dated June 7, 1985......................... 5,480 0.009133% W. D. Ellis, Trustee for Jon Christopher Champion U/A dated June 7, 1985............ 5,480 0.009133% W. D. Ellis, Trustee for Robin Renee Champion U/A dated June 7, 1985..................... 5,480 0.009133% W. D. Ellis, Trustee for Judith E. Pollander U/A dated June 7, 1985..................... 27,038 0.045063% Mary Jane Ellison............................ 14,836 0.024727% Carol Hudson Eure, Jr........................ 265 0.000442% Mary Elizabeth and Carol H. Eure, Tenants in Common..................................... 6,162 0.010270% Carol McHugh Faulkner........................ 6,151 0.010252% </TABLE> C-6 <PAGE> 159 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> Terese Rhodes Faulkner....................... 7,915 0.013192% Edward S. Finley, Jr......................... 1,738 0.002897% Virginia Doughton Finley..................... 17,287 0.028812% James A. Flanders............................ 28 0.000047% Emmett Williamson Fontaine................... 100,186 0.166977% James Ritchie Fontaine....................... 16,698 0.027830% Foundation for the Carolinas................. 10,824 0.018040% William R. Fowler............................ 806 0.001343% Alvin Richard Franklin....................... 480 0.000800% Clyde Joseph Franklin........................ 39 0.000065% Marian L. Fray............................... 7,391 0.012318% Rosalie Baker Fuller......................... 82 0.000137% Anthony B. Funari............................ 3,904 0.006507% Dell B. Funari............................... 36,972 0.061620% Eva Nancy Gallant............................ 3,797 0.006328% Julia Gallant................................ 2,743 0.004572% Harriett Gallant, Trustee u/w Paul M. Gallant.................................... 21,860 0.036433% William Erskine Gallant, III................. 3,768 0.006280% Barbara C. Gallion........................... 1,420 0.002367% Sarah Belk Gambrell.......................... 9,196,315 15.327190% Tr. u/w Mary I. Belk f/b/o Sarah Belk Gambrell, et al............................ 286,270 0.477117% Trustees u/w W. H. Belk for the benefit of Sarah Belk Gambrell, et al................. 225,555 0.375925% Mario Garcia, Trustee, Mary Garcia, Trustee, Garcia Family Trust........................ 5,447 0.009078% Charles A. Gardner........................... 3,587 0.005978% Dorothy Hensdale Gardner..................... 57,286 0.095477% Elizabeth Baker Garrett...................... 82 0.000137% Sarah Spears Geddie.......................... 4,139 0.006898% Betty Catherine Griffeth Geiger.............. 455 0.000758% Carolyn Snipes Gilliam....................... 875 0.001458% James K. Glenn, Jr........................... 160,691 0.267818% John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al....... 195,619 0.326032% J. K. Glenn, Jr., Custodian for James K. Glenn, III, under the N.C. Uniform Gifts to Minors Act................................. 1,868 0.003113% Madlon C. Glenn, Custodian for James K. Glenn, III, under the N.C. Uniform Gifts to Minors Act................................. 3,921 0.006535% Madlon Chambers Glenn........................ 872 0.001453% J. K. Glenn, Jr., Custodian for Madlon Hawley Glenn under the N.C. Uniform Gifts to Minors Act................................. 1,868 0.003113% Madlon C. Glenn, Custodian for Madlon Hawley Glenn under the N.C. Uniform Gifts to Minors Act................................. 3,921 0.006535% Sara Stevens Glenn........................... 599,241 0.998735% </TABLE> C-7 <PAGE> 160 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> John Belk Stevens Trust U/W ITEM III, Section A f/b/o Sara S. Glenn...................... 391,763 0.652938% Sara Stevens Glenn, Trustee under the Will of Nealie Belk Stevens for Sara Stevens Glenn...................................... 536,683 0.894472% Catherine H. Godwin.......................... 103,794 0.172990% Peggy E. Good................................ 2,432 0.004053% Gordon Family Limited Partnership............ 155,151 0.258585% Barbara A. Grant............................. 2,268 0.003780% Miss Julia L. Grant.......................... 62,376 0.103960% Thomas Alexander Grant, III.................. 485 0.000808% John Keith Green............................. 75,571 0.125952% Keith Smith Green............................ 33,693 0.056155% Robin Renee Green............................ 359 0.000598% Agnes A. Greenwood, as Trustee of the Agnes A. Greenwood Living Trust Agreement dated October 16, 1995........................... 6,095 0.010158% Robert E. Greiner............................ 302 0.000503% John Argis Hagins, Jr. ...................... 31,378 0.052297% Money Purchase Pension Plan of John A. Hagins, Jr., P. A.......................... 1,650 0.002750% Mary E. Hagins............................... 31,387 0.052312% Mary N. Hagins............................... 9,902 0.016503% Nora Matthews Hale........................... 21,807 0.036345% Elizabeth J. Hammond and James L. Hammond, Joints Tenants............................. 6,212 0.010353% Mary E. S. Hanahan........................... 261,502 0.435837% Love L. Hardaway as Trustee of the Love L. Hardaway Revocable Trust created U/A dated April 11, 1991, with Love L. Hardaway as Grantor.................................... 24,555 0.040925% Robert E. Hardaway, III, as Trustee of the Robert E. Hardaway, III Revocable Trust created U/A dated April 11, 1991 with Robert E. Hardaway, III as Grantor......... 56,007 0.093345% Robert Lindsey Hardaway...................... 15,760 0.026267% Charles C. Harris, III....................... 18 0.000030% Herbert Hackney Harris....................... 158 0.000263% Jense Jeffries Harris........................ 473 0.000788% Julian Clinton Harris........................ 158 0.000263% James Kennedy Hartsfield..................... 2,843 0.004738% Bobby E. Helms............................... 2,187 0.003645% Richard Lawrence Hensdale.................... 57,314 0.095523% Jerry Miller Herritage....................... 1,748 0.002913% Pauline P. Hinde............................. 8,580 0.014300% Frances H. Hocutt............................ 5,837 0.009728% Jane Lane Hodges............................. 812 0.001353% Olivia S. Hodges............................. 1,210 0.002017% Mary Elizabeth Holcomb....................... 2,107 0.003512% I. N. Howard................................. 56,635 0.094392% </TABLE> C-8 <PAGE> 161 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> Ruth C. Howard............................... 4,568 0.007613% Troy M. Howard............................... 1,246 0.002077% W. F. Howard, III............................ 1,419 0.002365% William Freeman Howard, Jr. ................. 32,840 0.054733% James T. Hubbard............................. 4,544 0.007573% Richard W. Hudson, Custodian for Ashley Claire Hudson under the N.C. Uniform Transfers to Minors Act.................... 4,891 0.008152% Richard W. Hudson, Custodian for Jennifer Anne Hudson under the N.C. Uniform Transfers to Minors Act.................... 4,891 0.008152% Karl G. Hudson, Jr. ......................... 5,454 0.009090% Karl G. Hudson, III.......................... 103,763 0.172938% Mike Belk Hudson............................. 736,273 1.227122% Amos J. Cummings, John L. Green, Jr. and North Carolina National Bank, Co-Trustees U/A 8/18/65 -- Mike Belk Hudson, Grantor... 73,639 0.122732% Marjorie L. Hudson Irrevocable Trust......... 7,346 0.012243% Richard W. Hudson............................ 94,111 0.156852% W. J. Hudson, III............................ 123,626 0.206043% William J. Hudson, IV........................ 21,943 0.036572% Edward A. Hunter, Jr., Custodian for Angela Caroline Hunter under the N.C. Uniform Gifts to Minors Act........................ 947 0.001578% Edward A. Hunter............................. 7,888 0.013147% Edward Alton Hunter, Jr...................... 4,733 0.007888% Edward A. Hunter, Jr., Custodian for Edward Alton Hunter, IV under the N.C. Uniform Gifts to Minors Act........................ 947 0.001578% Geraldine W. Hunter Testamentary Trust....... 3,155 0.005258% Jennifer Hunter.............................. 789 0.001315% Phillip C. Hunter............................ 5,837 0.009728% Stephen J. Huntley........................... 2,965 0.004942% Janet B. Irwin............................... 158 0.000263% Harriet Matthews Jackson..................... 38,732 0.064553% Catherine Wilson Jeffries.................... 789 0.001315% H. M. Jeffries, Jr. ......................... 51,270 0.085450% Jason Byerly Jeffries........................ 158 0.000263% Lynwood B. Jeffries.......................... 473 0.000788% James C. Jennings............................ 2,118 0.003530% Wallace F. Johnson........................... 4,980 0.008300% Jane Lane Jones.............................. 249 0.000415% Jane P. Jones................................ 888 0.001480% Mercer Taylor Jones, as Custodian for Kathryn Taylor Jones under the North Carolina Uniform Transfers to Minors Act............ 1,951 0.003252% Mercer Taylor Jones, as Custodian for Margaret Riis Jones under the North Carolina Uniform Transfers to Minors Act... 1,951 0.003252% Mercer Taylor Jones.......................... 57,021 0.095035% </TABLE> C-9 <PAGE> 162 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> David Joyner................................. 177 0.000295% Annabelle Matthews Kelly..................... 21,872 0.036453% Betty L. Kennedy............................. 3,447 0.005745% Robert K. Kerr, Jr. ......................... 2,281 0.003802% Robert K. Kerr, III.......................... 57 0.000095% Billy O. Killian............................. 5,769 0.009615% Ray A. Killian............................... 1,175 0.001958% David E. Kimrey.............................. 360 0.000600% Elizabeth Lynn Kimrey........................ 221 0.000368% W.H. Kimrey, Jr. ............................ 360 0.000600% Margaret Fontaine King....................... 16,420 0.027367% Evelyn J. Kirby, Bonnie Gail Kirby Boggle and Karen J. Kirby Mason, as Co-Trustees of the Edward S. Kirby Family Trust............... 97,187 0.161978% Herbert J. Knight............................ 2,355 0.003925% Ms. Sarah Belk Gambrell Knight............... 2,111,234 3.518723% John A. Kuhne................................ 21,772 0.036287% John A. Kuhne, Jr. .......................... 35,169 0.058615% John A. Kuhne, Jr., Custodian for Katharine Simpson Kuhne under the S.C. Uniform Transfers to Minors Act.................... 2,316 0.003860% Lucy Caroline B. Kuhne....................... 37,382 0.062303% Lucy Simpson Kuhne........................... 290,024 0.483373% William D.S. Kuhne, Custodian for R. Lauren Kuhne under the S.C. Uniform Transfers to Minors Act................................. 3,796 0.006327% William D.S. Kuhne........................... 40,654 0.067757% Rebecca Love Hardaway LaBarre................ 15,760 0.026267% Sharon Ridley, Trustee for Estate of Zena J. Landis..................................... 2,761 0.004602% NationsBank as Trustee for the Daisy Belk Doughton Lange Revocable Trust dated 3/25/97.................................... 194,345 0.323908% Sara Dew Misner and North Carolina National Bank, Co-Trustees for Daisy Doughton Lange U/A dated November 5, 1965 -- Johny Belk Blackmon, Grantor.......................... 482,772 0.804620% Eric Belk Lange.............................. 2,913 0.004855% John Belk Lange.............................. 87,571 0.145952% John Belk Lange, Custodian for Sofia Belk Lange under the N.C. Uniform Transfers to Minors Act................................. 1,786 0.002977% Jane Taylor Lassiter, as Custodian for Ann Mills Lassiter under the North Carolina Uniform Transfers to Minor Act............. 1,951 0.003252% Jane Taylor Lassiter......................... 56,844 0.094740% Jane Taylor Lassiter, as Custodian for Robert Harrison Lassiter, Jr. under the North Carolina Uniform Transfers to Minors Act... 1,951 0.003252% Leggett Investment Corp...................... 7,492 0.012487% Miss Armantine M. Leggett.................... 24,580 0.040967% </TABLE> C-10 <PAGE> 163 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> William E. Leggett, Jr., Substituted Trustee U/A dated April 4, 1990, with H.G. Leggett, Jr., f/b/o Cary Elizabeth Leggett.......... 3,729 0.006215% Armantine M. Leggett, Trustee U/T/A dated December 21, 1988 f/b/o Frances Claire Leggett.................................... 2,834 0.004723% William A. Leggett, Successor Trustee U/A dated December 29, 1976 w/Fred B. Leggett, Jr. ....................................... 4,686 0.007810% Fred B. Leggett, Jr. ........................ 64,061 0.106768% Fred B. Leggett, III......................... 4,425 0.007375% H. Gordon Leggett, Jr. ...................... 10,597 0.017662% Henry A. Leggett............................. 5,347 0.008912% William E. Leggett, Jr., Substituted Trustee U/A dated April 4, 1990, with H. G. Leggett, Jr., f/b/o Jane Venable Leggett... 3,729 0.006215% Joan A. Leggett.............................. 839 0.001398% Armantine M. Leggett, Trustee U/T/A dated December 21, 1988 f/b/o Merideth Katherine Leggett.................................... 2,834 0.004723% Peter A. Leggett............................. 1,397 0.002328% William E. Leggett, Jr., Substituted Trustee U/A dated April 4, 1990, with H. G. Leggett, Jr., f/b/o Reid Gordon Leggett.... 3,729 0.006215% Estate of Robert A. Leggett, Jr.............. 7,510 0.012517% Robert A. Leggett, III....................... 4,251 0.007085% William E. Leggett, Jr., Substituted Trustee U/A dated April 4, 1990, with H. G. Leggett, Jr., f/b/o Susan Carter Leggett... 3,729 0.006215% Fred B. Leggett, Jr., Trustee for Suzanne Holland Leggett............................ 13,009 0.021682% Suzanne Holland Leggett and Fred B. Leggett, Jr., Trustees under the Will of F. B. Leggett, Deceased, f/b/o Suzanne H. Leggett.................................... 114,810 0.191350% Thomas C. Leggett............................ 24,608 0.041013% William A. Leggett........................... 5,347 0.008912% William E. Leggett, Jr....................... 12,660 0.021100% L. E. Lewis.................................. 14,475 0.024125% Bayard S. Lindell............................ 486 0.000810% Barnett Banks Trust Company, N. A., Dell B. Funari and E. Jackson Boggs, Co-Personal Representatives Estate of Edwin Colin Lindsey.................................... 875,469 1.459115% B. Neal Long................................. 6,641 0.011068% Chester Long and Wilda Long.................. 1,859 0.003098% Emily H. MacLeod............................. 11,075 0.018458% James Blount MacLeod......................... 13,033 0.021722% Suzanne Hudson MacLeod....................... 128,521 0.214202% Carolyn Marlow............................... 230 0.000383% Charlotte B. Marshall........................ 11,149 0.018582% Frank Martinez............................... 1,302 0.002170% Mary Claudia, Inc. .......................... 15,433 0.025722% Bobby H. Maslen.............................. 37,191 0.061985% </TABLE> C-11 <PAGE> 164 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> David Haslen................................. 1,553 0.002588% Lynn Maslen.................................. 1,775 0.002958% Sylvia Maslen................................ 1,331 0.002218% B. Frank Matthews, II........................ 237,780 0.396300% Betty Choate Matthews........................ 81,828 0.136380% Carson Henry Belk Matthews................... 29,376 0.048960% Eugene Robinson Matthews..................... 41,793 0.069655% James Houston Matthews, III.................. 2,827 0.004712% First Union National Bank of N.C., B. Frank Matthews, II and Annabelle Z. Royster, Co- Trustees under the Will of J. H. Matthews, Jr. ....................................... 166,788 0.277980% Oliver P. Matthews, Jr. ..................... 35,925 0.059875% Vann Marshall Matthews....................... 20,737 0.034562% William McGill Matthews, Jr. ................ 29,376 0.048960% William McGill Matthews, V................... 262,666 0.437777% James K. Glenn, Jr., Trustee under Will of Daisy Belk Mattox.......................... 1,501,250 2.502083% Starr McHugh................................. 7,588 0.012647% Betty B. Melchert............................ 8,198 0.013663% Mary Fontaine Mericle........................ 15,654 0.026090% Milburn Investment Company................... 444,266 0.740443% Jane E. Milford.............................. 608 0.001013% Sue Leggett Miller........................... 66,221 0.110368% Sue L. Miller Trust U/A 12/29/76 f/b/o William Larry Miller, Jr. ................. 9,242 0.015403% Daniel J. Mixson............................. 3,502 0.005837% James D. Mixson.............................. 2,831 0.004718% Judith P. Mixson............................. 1,069 0.001782% Ann Monckton................................. 167,630 0.279383% Montgomery Investment Company................ 2,080,251 3.467085% Luther T. Moore.............................. 4,847 0.008078% Henry D. Morgan.............................. 277 0.000462% James B. Morgan.............................. 305 0.000508% Marsha Howard Morgan......................... 2,941 0.004902% Charles Walker Morris........................ 23,332 0.038887% Mrs. Katherine Belk Morris, Custodian for Charles Walker Morris, Jr. under the N.C. Uniform Gifts to Minors Act................ 40,528 0.067547% Mrs. Katherine Belk Morris, Custodian for Charles Walker Morris, Jr. under the N.C. Uniform Transfers to Minors Act............ 31,886 0.053143% Thomas M. Belk, as Custodian, or Katherine M. Belk or Thomas M. Belk, Jr., as substitute custodian in the order named, for Charles Walker Morris, Jr., under NC UTTMA......... 38,399 0.063998% Katherine Whitner McKay Belk Morris, Trustee U/A dated December 28, 1993................ 1,041,376 1.735626% Mrs. Katherine Belk Morris, Custodian for Miss Katherine Belk Morris under the N.C. Uniform Gifts to Minors Act................ 41,414 0.069023% </TABLE> C-12 <PAGE> 165 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> Mrs. Katherine Belk Morris, Custodian for Miss Katherine Belk Morris under the N.C. Uniform Transfers to Minors Act............ 31,886 0.053143% Thomas M. Belk, as Custodian, or Katherine M. Belk or Thomas M. Belk, Jr., as substitute custodian in the order named, for Miss Katherine Belk Morris, under NC UTTMA...... 37,513 0.062522% Mrs. Katherine Belk Morris, Custodian for Rebecca Price Morris under the N.C. Uniform Gifts to Minors Act........................ 34,508 0.057513% Katherine Belk Morris, Custodian for Rebecca Price Morris under the N.C. Uniform Transfers to Minors Act.................... 32,613 0.054355% Thomas M. Belk, as Custodian, or Katherine M. Belk or Thomas M. Belk, Jr., as substitute custodian in the order named, for Rebecca Price Morris, under NC UTTMA............... 43,939 0.073232% Patricia Smith Murdoch....................... 14,592 0.024320% James B. Murrill, III........................ 33,316 0.055527% Lou Ella J. Mustonen......................... 1,421 0.002368% Daniel D. Nardozzi........................... 28 0.000047% Michael E. Nardozzi, Custodian for Jennifer M. Nardozzi under the Florida Uniform Gifts to Minors Act.............................. 28 0.000047% Patricia J. Nardozzi, Custodian for Kevin M. Nardozzi under the Florida Uniform Gifts to Minors Act................................. 28 0.000047% Patricia J. Nardozzi, Custodian for Kristen E. Nardozzi under the Florida Uniform Gifts to Minors Act.............................. 28 0.000047% Michael E. Nardozzi.......................... 28 0.000047% Michael E. Nardozzi, Custodian for Nancy M. Nardozzi under the Florida Uniform Gifts to Minors Act................................. 28 0.000047% Patricia J. Nardozzi......................... 28 0.000047% Patricia J. Nardozzi, Custodian for Ryan D. Nardozzi under the Florida Uniform Gifts to Minors Act................................. 28 0.000047% Victoria V. Nardozzi......................... 28 0.000047% Thomas A. Nipper............................. 804 0.001340% James A. Nisbet.............................. 2,814 0.004690% Thomas Richard Nisbet, Jr.................... 2,510 0.004183% Cornelia Belk Parker......................... 116,785 0.194642% Ruth D. Parkerson............................ 579 0.000965% Beth Porter Parks............................ 3,949 0.006582% Charles E. Parks, III........................ 35,233 0.058722% George King Parks............................ 81,904 0.136507% Nancy King Parks............................. 58,940 0.098233% George A. Perrine............................ 5,856 0.009760% Catherine McHugh Peterson.................... 1,782 0.002970% J.R. Phipps, Jr.............................. 3,900 0.006500% </TABLE> C-13 <PAGE> 166 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> Selma C. Piner............................... 2,171 0.003618% Teri Stone Pirie, Custodian of Kristen Stone Pirie under the Florida Uniform Gifts to Minors Act................................. 123 0.000205% Judith E. Pollander.......................... 20,833 0.034722% James F. Pollock............................. 8,287 0.013812% Polly & Co. ................................. 20,932 0.034887% Thomas H. Pope............................... 518 0.000863% Frances Glenn Porter......................... 160,352 0.267253% J.K. Glenn, Jr., Custodian under the North Carolina Uniform Gifts to Minors Act for the benefit of Sara Louise Porter, Jr. .... 6,660 0.011100% J.K. Glenn, Jr., Custodian under the North Carolina Uniform Gifts to Minors Act for the benefit of Stephen Goodwin Porter, Jr. ....................................... 6,660 0.011100% W.M. Raynor.................................. 66,983 0.111638% Robert K. Reel, Jr. ......................... 564 0.000940% Evelyn Matthews Rehn......................... 29,376 0.048960% Page Renger.................................. 171,558 0.285930% Helen L. Reynolds............................ 699 0.001165% Alec A. Rhodes............................... 7,915 0.013192% Cecil David Rhodes, Jr....................... 70,220 0.117033% Cecil David Rhodes, III...................... 840 0.001400% Cecil D. Rhodes Remainder Trust.............. 92,764 0.154607% Lorinn C. Rhodes............................. 7,915 0.013192% Richard Stockton Rhodes...................... 840 0.001400% Robert Barnard Rhodes........................ 840 0.001400% Robert Brady Rhodes.......................... 7,915 0.013192% Robert Earl Rhodes........................... 14,481 0.024135% Sandra Jeanne Rhodes......................... 27,438 0.045730% Thelma E. Rhodes............................. 37,949 0.063248% Ralph Richardson............................. 1,632 0.002720% Robinson Investment Company.................. 80,699 0.134498% Flora McNair Robinson........................ 2,078 0.003463% Joe Robinson................................. 1,175 0.001958% John S. Robinson............................. 335 0.000558% John Shepard Robinson, Jr. .................. 2,078 0.003463% Rachel R. Robinson........................... 13,695 0.022825% Ted Roscoe................................... 28 0.000047% Annabelle Z. Royster......................... 5,671 0.009452% Marguerite H. Ruppenthal..................... 1,305 0.002175% Judith E. Rushton............................ 2,432 0.004053% Claire Efird Russo........................... 19,837 0.033062% Janet Peel Scott............................. 158 0.000263% Edna Elizabeth Self.......................... 158 0.000263% Laura Corey Sherratt......................... 82 0.000137% Joy Benton Shute............................. 907 0.001512% Douglas Simmerson............................ 27,513 0.045855% Earl Simmerson............................... 27,513 0.045855% </TABLE> C-14 <PAGE> 167 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> Simpson Enterprises, Inc..................... 152,847 0.254745% Elizabeth Parks Simpson...................... 69,209 0.115348% Kate McArver Simpson......................... 59,844 0.099740% Kate McArver Simpson, Lucy Caroline Bowden Simpson Kuhne and Hazel Claire M. Efird as Personal Representatives of the Estate of William Henry Belk Simpson, Deceased....... 460,209 0.767015% The Belk-Simpson Foundation, Wachovia Bank of S.C., N. A., as Successor Trustee.......... 18,365 0.030608% Maurice M. Sims and Hazel W. Sims, Tenants in Common..................................... 237 0.000395% Harold N. Sisk and Betty A. Sisk, Tenants in Common..................................... 270 0.000450% Doris M. Skinner............................. 2,366 0.003943% Smith Barney, Harris Upham & Co., Incorporated............................... 74 0.000123% Roy Curtis Smith, Jr......................... 1,210 0.002017% James E. Smithey and Mary Ann Smithey, Joint Tenants.................................... 1,107 0.001845% Al M. Snipes Family Trust I.................. 875 0.001458% Carolyn W. Southerland....................... 17,621 0.029368% Pamela Peel Spell............................ 158 0.000263% Pearl J. Spencer............................. 9,500 0.015833% Lvera Viola Sprague.......................... 3,997 0.006662% Paul Joseph Sprague.......................... 2,361 0.003935% Martha L. St. John........................... 12,675 0.021125% Staban & Co. ................................ 20,932 0.034887% W.L. Starling, Jr. .......................... 5,547 0.009245% Van E. Staton................................ 6,464 0.010773% Alita T. Stephenson.......................... 818 0.001363% Anne P. Stephenson........................... 670 0.001117% Ivor P. Stephenson........................... 818 0.001363% James W. Stephenson, III..................... 12,820 0.021367% Joe John Stephenson.......................... 11,349 0.018915% Locketta B. Stephenson....................... 818 0.001363% Robert F. Stephenson......................... 10,944 0.018240% J. K. Glenn and Sara Stevens Glenn, Trustees under Will of A. F. Stevens f/b/o Gretchen Stevens.................................... 324,508 0.540847% Frank W. Still............................... 2,011 0.003352% Ann B. Stocks................................ 158 0.000263% Teri L. Stone................................ 901 0.001502% Phyllis E. Stone............................. 1,665 0.002775% Wayne H. Stone............................... 168 0.000280% Wayne H. Stone, Jr........................... 174 0.000290% David H. Stovall, Jr......................... 2,413 0.004022% Harold V. Sullivan, III...................... 3,925 0.006542% Katharine Efird Sullivan..................... 20,384 0.033973% Katherine Gallant Sullivan................... 4,080 0.006800% </TABLE> C-15 <PAGE> 168 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> Susan Woodward Sutton........................ 32 0.000053% M. P. Taylor Associates Limited Partnership................................ 10,578 0.017630% Margaret Parks Taylor........................ 17,574 0.029290% Susan Barrett Taylor......................... 460 0.000767% A. Farrell Teague............................ 5,428 0.009047% Karen Hudson Thomas and Calhoun Thomas, III, Jt. Ten.................................... 2,746 0.004577% Joe G. Thomason.............................. 10,286 0.017143% Karl G. Thomason............................. 20,217 0.033695% Nancy B. Thomason............................ 29,439 0.049065% Joe T. Thomason, Custodian for Rachel A. Thomason under the N.C. Uniform Transfers to Minors Act.............................. 4,966 0.008277% Joe T. Thomason, Custodian for Sarah A. Thomason under the N.C. Uniform Transfers to Minors Act.............................. 4,966 0.008277% Rebecca Thomasson............................ 302 0.000503% Bettie Fontaine Thompson..................... 16,698 0.027830% Daniel P. Thompson, Sr....................... 444 0.000740% Reaves Robinson Thompson..................... 1,609 0.002682% Beatrice E. Tomlinson........................ 1,990 0.003317% James R. Tripp, Jr. Irrevocable Trust........ 11,298 0.018830% Marjorie Louise Hudson Tripp................. 3,299 0.005498% Elizabeth C. Upchurch........................ 62,143 0.103572% Mary Matilda Griffeth VanPuffelen............ 455 0.000758% Mary Matthews Vaughn......................... 39,423 0.065705% Johnnie Schrum Waits......................... 22,830 0.038050% Johnsie McF. Wall............................ 8,328 0.013880% Henry V. Ward................................ 4,396 0.007327% William A. Welborn........................... 8,210 0.013683% C. C. Welch.................................. 3,542 0.005903% Elizabeth Matthews Welton Trust, Elizabeth Matthews Welton, Trustee u/a dtd August 2, 1995....................................... 231,236 0.385393% John E. Wertz................................ 1,956 0.003260% Deborah L. Wesslen........................... 4,251 0.007085% Armantine M. Leggett, Trustee U/T/A dated December 21, 1988 f/b/o Ryan Scott Wesslen.................................... 2,834 0.004723% Ann P. West.................................. 888 0.001480% Jean W. West................................. 660 0.001100% Grace B. Westerlund.......................... 6,704 0.011173% Margaret Lane Wetzel......................... 249 0.000415% Dorothy Joyce Wheeler........................ 39 0.000065% M. Paran Wheeler............................. 57 0.000095% SunTrust Bank, Augusta, N. A., as Guardian for Frankie Stevens Whelchel............... 15,710 0.026183% Joan Cornelia Whelchel....................... 16,868 0.028113% </TABLE> C-16 <PAGE> 169 <TABLE> <CAPTION> ESTIMATED NUMBER OF SHARES OF NEW BELK CLASS A COMMON STOCK EXISTING BELK SHAREHOLDER TO BE RECEIVED IN REORGANIZATION PERCENTAGE OF NEW BELK - ------------------------- -------------------------------- ---------------------- <S> <C> <C> SunTrust Bank, Augusta, N. A. and Joan C. Whelchel as Successor Co-Trustees under Agreement with Mary Ruth Whelchel.......... 33,094 0.055157% Mary Stevens Whelchel........................ 169,978 0.283297% John Belk Stevens Trust U/W ITEM III, Section B f/b/o Mary S. Whelchel................... 391,763 0.652938% SunTrust Bank, Augusta, N. A. and Joan C. Whelchel as Successor Co-Trustees under Agreement with Mary Stevens Whelchel dated September 15, 1950......................... 514,997 0.858328% SunTrust Bank, Augusta, N. A. and Joan C. Whelchel, Successor Co-Trustees under the Will of Nealie Belk Stevens for Mary Stevens Whelchel........................... 536,683 0.894472% SunTrust Bank, Augusta, N. A. and Joan C. Whelchel as Successor Co-Trustees under Agreement with Merritt Cofer Whelchel, Jr......................................... 12,915 0.021525% SunTrust Bank, Augusta, N. A. and Joan C. Whelchel as Successor Co-Trustees under Agreement with Nealie Belk Stevens dated December 1, 1952........................... 120,064 0.200107% SunTrust Bank, Augusta, N. A. and Joan C. Whelchel as Successor Co-Trustees under Agreement with Sadie Elizabeth Whelchel.... 15,710 0.026183% A. Grant Whitney, Jr......................... 75 0.000125% Frank D. Whitney............................. 75 0.000125% Lillian D. Whitney........................... 75 0.000125% James Glenn Williams......................... 10,211 0.017018% SGW Revocable Trust #101, Sally G. Williams & Paul F. Williams, Trustees U/A 11/8/96..... 193,077 0.321795% Paul Forrester Williams, Jr.................. 32,675 0.054458% Doris C. Wilson.............................. 8,618 0.014363% William L. Wilson............................ 1,154 0.001923% Suzanne M. Woodbury.......................... 9,242 0.015403% Ron Woodward................................. 32 0.000053% Janie Hall Wright............................ 7,843 0.013072% K. Lee Wright Living Trust, dated July 31, 1996, K. Lee Wright, Trustee............... 8,202 0.013670% Paul B. Wyche, Jr............................ 303 0.000505% Herbert Youngs............................... 2 0.000003% TOTAL.............................. 60,000,007(1) 100.000000% </TABLE> - --------------- (1) Does not include 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. C-17 <PAGE> 170 ANNEX D FAIRNESS OPINION OF WILLAMETTE MANAGEMENT ASSOCIATES, INC. November 25, 1997 Board of Directors of each of the Belk Companies listed in the Plan and Agreement of Reorganization (the "Belk Companies") Dear Members of the Boards: Willamette Management Associates ("Willamette") has been retained by Belk Store Services ("BSS") to evaluate (i) the reasonableness of the process used in determining an Applicable Exchange Ratio for each Belk Company to convert existing shares of common stock of such Belk Company into shares of Class A Common Stock, par value $.01 per share ("Class A Common Stock"), of Belk, Inc. ("New Belk") (collectively, the "Valuation Process") and (ii) to render an opinion as to the reasonableness of the Valuation Process and the fairness of the Valuation Process, from a financial point of view, to the Existing Belk Shareholders ("Shareholders"). Except as otherwise noted herein, capitalized terms used in this letter are defined as set forth in the Plan and Agreement of Reorganization by and among each Belk Company, Belk Acquisition Co., and New Belk, dated as of November 25, 1997 (the "Reorganization Agreement"). Willamette is one of the nation's leading independent financial advisory and business valuation firms. Willamette's principal business is the valuation of businesses and business interests, including both privately-held and publicly traded companies, for all purposes, including employee stock ownership plans, mergers and acquisitions, divestitures, public offerings, gift and estate taxes, corporate and partnership recapitalizations, dissolutions and other objectives. Willamette has provided valuations for over 50 clients in the retail industry. Pursuant to the Reorganization Agreement, each Belk Company (other than Belk-Simpson) will be merged with and into New Belk and New Belk Sub will be merged with and into Belk-Simpson, in each case in accordance with the provisions of the applicable state corporate law of each Belk Company. New Belk will be the surviving corporation in each such Merger, except that Belk-Simpson will survive its Merger with New Belk Sub. As a result of the Reorganization, the separate corporate existence of each Belk Company (other than Belk-Simpson) will cease, Belk-Simpson will survive its Merger with New Belk Sub as a wholly-owned subsidiary of New Belk, and the Surviving Belk Subsidiaries will survive the Mergers as wholly-owned subsidiaries of New Belk. The Reorganization Agreement provides that each share of Belk Companies Common Stock issued and outstanding immediately before the Effective Time (other than treasury shares and shares held by other Belk Companies which, with certain exceptions described in the Reorganization Agreement, will be canceled) and all rights in respect thereof shall, at the Effective Time, be converted into and become exchangeable for a specified number of shares of Class A Common Stock (for each Belk Company, the "Applicable Exchange Ratio" and for all Belk Companies, the "Applicable Exchange Ratios"). The Applicable Exchange Ratio for each Belk Company was determined in accordance with the Valuation Process. In our capacity as your independent financial advisor, you have specifically asked us to render a written opinion (the "Opinion") as to: - the reasonableness of the Valuation Process used to determine the Applicable Exchange Ratios and allocate shares of Class A Common Stock in the Reorganization; and - the fairness of the Valuation Process, from a financial point of view, to the Existing Belk Shareholders. We understand our opinion will be used in the context of the Applicable Exchange Ratios solely to determine financial fairness. No other purpose is intended or should be inferred. Willamette relied upon certain assumptions and qualifications in our determination of the reasonableness of the valuation process. We assumed the participation of all of the Belk Companies in the Reorganization and did not attempt to address combinations of less than all of the Belk Companies. We have also assumed that D-1 <PAGE> 171 Members of the Boards of Directors November 25, 1997 Page 2 management of New Belk will act in a prudent manner and attempt to maximize shareholder wealth. Willamette does not opine to the fairness of the Applicable Exchange Ratio for any particular Merger or the consideration to be received by an Existing Belk Shareholder. We have not selected the methods of determining the Applicable Exchange Ratios, established the Applicable Exchange Ratios, or attempted to address, among other things, the impact of the Reorganization on Existing Belk Shareholders who do not participate in the Reorganization; the fairness of the Reorganization Expenses to be borne by BSS; the expected capital structure of New Belk or its impact on the performance of New Belk; whether or not alternative methods of determining the relative value of each Belk Company also would have provided fair results or results substantially similar to those of the methodology used; or the fairness or advisability of alternatives to the Reorganization. We make no recommendation to the Existing Belk Shareholders as to whether to approve or reject the Merger relating to any specific Belk Company. In connection with this Opinion, we have made such reviews, analyses, and inquiries as we deemed necessary and appropriate under the circumstances. We reviewed, among other things: (i) the Reorganization Agreement; (ii) the financial analysis conducted by BSS used to determine the Applicable Exchange Ratios; (iii) each Belk Company's financial statements for the fiscal years ended February 1, 1993 through 1997; (iv) corporate budget for New Belk for the fiscal year 1998 prepared by BSS; (v) certain publicly available information and financial data on publicly traded companies similar to New Belk; (vi) economic information and data; (vii) comparative industry data as they relate to New Belk; and (viii) additional studies, analyses, and investigations as we deemed appropriate. Although our thorough discussions with management and review of supporting documentation give us comfort that our due diligence efforts are appropriate, we have not conducted a physical examination of all of New Belk's properties or facilities and we have not obtained or been provided with any independent formal evaluation of such properties and facilities. We have reviewed the financial information and other internal data provided to us and other publicly available information, and while we are unable to verify the accuracy and completeness of such data and information, we have judged the reasonableness thereof and made certain adjustments thereto. Our Opinion is necessarily based upon market, economic, and other conditions as they exist on, and can be evaluated as of, the date of this letter. Management has represented to us that there has been no material adverse change in the business, financial position, or results of operations of the Belk Companies since August 31, 1997. Based on all of the foregoing, it is our opinion, as of the date hereof, that: - the Valuation Process used to determine the Applicable Exchange Ratios is reasonable; and - the Valuation Process is fair, from a financial point of view, to the Existing Belk Shareholders. In accordance with recognized professional ethics, our professional fees for this service are not contingent upon the opinion expressed herein, and neither Willamette, nor any of its employees, has a present or intended financial relationship with or interest in any of the Belk Companies. /s/ WILLAMETTE MANAGEMENT ASSOCIATES ------------------------------------------ Willamette Management Associates, Inc. D-2 <PAGE> 172 BELK-SIMPSON COMPANY OF PARAGOULD, ARKANSAS, INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Simpson Company of Paragould, Arkansas, Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Arkansas law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 74.3274 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 24,082 shares of New Belk Class A Common Stock which will represent approximately 0.0401% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by two-thirds of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 173 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 174 BELK-SIMPSON COMPANY OF PARAGOULD, ARKANSAS, INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-SIMPSON COMPANY OF PARAGOULD, ARKANSAS, INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Simpson Company of Paragould, Arkansas, Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Arkansas law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 74.3274 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 175 BELK-SIMPSON COMPANY OF PARAGOULD, ARKANSAS, INC. SUPPLEMENT NO. 1 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 1 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-SIMPSON COMPANY OF PARAGOULD, ARKANSAS, INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/ PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 10 DETERMINATION OF EXCHANGE RATIO............................. 11 COMPARATIVE PER SHARE DATA.................................. 14 SELECTED HISTORICAL FINANCIAL INFORMATION................... 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 16 BUSINESS OF THE COMPANY..................................... 16 SECURITY OWNERSHIP OF THE COMPANY........................... 17 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 176 THE COMPANY The Company was incorporated as an Arkansas corporation in 1955. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters rights under Arkansas law), will be converted, without any action on the part of the Shareholder, into the right to receive 74.3274 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were 3,420 shares of Common Stock outstanding held of record by nine Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of two-thirds of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned 90.5% of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 177 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Arkansas Business Corporation Act (the "ABCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of the material differences in the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the ABCA. Authorized Capital Stock. The authorized capital stock of New Belk is 420,000,000 shares, consisting of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 3,420 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A 3 <PAGE> 178 Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the ABCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders out of surplus (defined as net assets minus stated capital) or net profits for the fiscal year in which the dividend is declared as long as the distributions do not cause (i) the corporation to be 4 <PAGE> 179 unable to pay its debts as they come due in the usual course of business, (ii) the corporation's total assets to be less than the sum of its total liabilities or (iii) the highest liquidation preferences of shares entitled to such preference to exceed the corporation's net assets. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The ABCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least ten percent (10%) of all shares entitled to vote at a special meeting. The Company Bylaws authorize the Chairman, President, Secretary or the Company Board, or any Shareholder pursuant to the written request of the holders of not less than ten percent (10%) of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. Under the ABCA, unless the articles of incorporation or the ABCA specifies a different voting requirement, if the majority of the shares represented at the meeting and entitled to vote on the subject matter cast an affirmative vote, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify any different voting requirements than as set forth in the ABCA. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. The ABCA requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by 66 2/3% of the votes entitled to be cast by any class of shares 5 <PAGE> 180 entitled to vote as a class. As under the DGCL, the holders of shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise authorized by the ABCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the ABCA, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless the articles of incorporation reserves this power exclusively to the shareholders. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has concurrent power by vote of a majority of the directors to make, alter, amend or rescind the Company Bylaws. The bylaws enacted by the Shareholders may be executed by action of the Company Board and vice versa; provided, however, the Company Board may not re-enact, substantially or otherwise, a bylaw which the Shareholders have repealed or altered, nor may it repeal a bylaw enacted by the Shareholders which limits the powers of the Company Board or enhances or protects the rights of Shareholders, without the consent of the Shareholders. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. The ABCA provides that any action to be taken at a meeting of the shareholders of a corporation may be taken without a meeting if all the shareholders entitled to vote on the proposed corporate action sign a written consent describing such action. The Company Bylaws are consistent with the foregoing ABCA provision. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. Under the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. 6 <PAGE> 181 The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the ABCA permits a vacancy in the board of directors, other than a vacancy occurring through shareholder action in remaining a director, to be filled by a majority of the board of directors then in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The ABCA requires a corporation to have at least three directors except when there are less than three record shareholders of the corporation. In such a case, the ABCA requires the corporation to have at least as many directors as record shareholders. The number of directors may be increased or decreased from time to time by amendment to the bylaws, but no decrease may have the effect of shortening the term at any incumbent director. The Company Bylaws require the Company Board to consist of at lease three but no more than 15 members. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Neither the ABCA nor the Company Articles provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the ABCA, a majority of the shareholders entitled to elect directors may remove one or more directors with or without cause at a meeting called expressly for that purpose. If a director is elected by a separate class of shareholders, only the vote of a majority of the shareholders of that class may remove him. 7 <PAGE> 182 The Company Bylaws provide that Directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. The Company Articles do not provide for the staggering of the Company Board. Cumulative Voting. Under the DGCL, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. The ABCA does not contain a statute which addresses directly cumulative voting. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. The ABCA does not contain a statute which addresses directly conflict-of-interest transactions. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonable believed that the act was in, or at least not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit director monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. The ABCA concerning indemnification and limitation of liability is generally equivalent to the DGCL. The ABCA provides that a director will not be personally liable to the corporation for voting affirmatively for the distribution of assets or repurchase of shares in violation of the ABCA if that director relied and acted in good faith upon certain records and reports in casting his vote in favor of the distribution or repurchase. 8 <PAGE> 183 The Company Bylaws authorize indemnification as provided in the ABCA. In addition, the Company Bylaws provide that the Company shall indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of the foregoing capacities; provided, however, that the Company shall not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company shall likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership, or as a trustee or administrator under an employee benefit plan. The Company shall also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The ABCA requires the affirmative vote of 66 2/3% of the outstanding shares of each class of shares entitled to vote as a class to approve a merger or consolidation. The ABCA and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are substantially similar, except the ABCA requires the affirmative vote of 66 2/3% of the outstanding shares of the corporation and the DGCL requires the affirmative vote of a majority of the outstanding shares of the corporation. Anti-Takeover Provisions. The DGCL contains a business combination statute which is generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of freeze-out mergers. Freeze-out mergers are where the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. 9 <PAGE> 184 The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. The ABCA does not contain a business combination statute. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the ABCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe to an additional issue of stock or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for purchase or receive any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk shall make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The ABCA provides that shareholders have preemptive rights except in certain circumstances unless otherwise provided in the articles of incorporation. The Company Articles do not provide otherwise. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records, and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. The ABCA is equivalent to the DGCL. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Section 4-26-1007 of the ABCA ("Section 4-26-1007") has the right to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger. The following is a summary of Section 4-26-1007 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Section 4-26-1007, 10 <PAGE> 185 which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN SECTION 4-26-1007 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. A Shareholder who wishes to perfect his dissenter's rights in the event that the Merger is effected must: (a) Deliver to the Company, prior to or at the meeting of shareholders at which the Reorganization Agreement and the Merger is submitted to a vote, a written objection to the Merger; (b) Not have voted in favor of the Reorganization Agreement and the Merger, and (c) Within ten days after the date on which the vote on the Reorganization Agreement and the Merger was taken, make a written demand stating the number and class of the shares owned by the Shareholder, on New Belk, for payment of the fair value of his shares as of the day prior to the date on which the vote was taken approving the Reorganization Agreement and the Merger. Any written notice of objection to the Reorganization Agreement and the Merger pursuant to clause (a) of the immediately preceding paragraph should be mailed or delivered by a Shareholder to Belk, Inc., 2801 West Tyvola Road, Charlotte, NC 28217-4500, Attention: Ralph A. Pitts, General Counsel. Because the written objection must be delivered prior to the time the Shareholder votes on the Merger, it is recommended, although not required, that a Shareholder using the mail should use certified or registered mail, return receipt requested, to confirm that he has made timely delivery. Any Shareholder who fails to make the demand on New Belk described in clause (c) of the immediately preceding paragraph within the prescribed ten-day period will be bound by the terms of the Reorganization Agreement and the Merger. If within 30 days after the Merger is effected New Belk and the Shareholder agree upon the value of the Shareholder's shares, New Belk must make payment to the Shareholder within 90 days after the date the Merger is effected upon the Shareholder's surrender of his certificate or certificates representing his shares. If New Belk and the Shareholder do not agree on the value of the Shareholder's shares within 30 days after the date the Merger is effected, then, within 60 days of the expiration of the 30-day period, the Shareholder may file a petition in Pulaski County Circuit Court asking for a finding and determination of the fair market value of the shares. The Shareholder will be entitled to a judgment against New Belk for the amount of the fair value as of the day prior to the date on which the vote was taken approving the Reorganization Agreement and the Merger plus interest thereon to the date of the judgment. The judgment will be payable only upon and simultaneously with the surrender to New Belk of the certificate or certificates representing the shares. Unless the Shareholder files a petition within the required time period, the Shareholder and all persons claiming under him shall be bound by the terms of the Reorganization Agreement and the Merger. The fact that a shareholder has dissenters' rights under Section 4-26-1007 of the ABCA will not impair his right to challenge the legality of the Merger and sue to enjoin the action or enforce any other legal remedy in connection therewith. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before 11 <PAGE> 186 interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $3,308,927 $3,308,927 0.6 $(1,757,708) $3,743,064 EBITDA............... 322,989 321,649 7 (1,757,708) 4,009,251 EBIT................. 310,609 309,269 10 (1,757,708) 4,850,398 Net Income........... 243,421 242,582 15 -- 3,638,730 Book Equity.......... 3,701,894 3,691,157 1 -- 3,691,157 </TABLE> 12 <PAGE> 187 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Beth Department Store of Stuttgart, Ark., Inc. 2.0380% X $ 2,236,259 = $ 45,575 =========== Relative Operating Value of Company $ 4,850,398 Relative Operating Value of Other Companies Owned by Company + 45,575 ----------- Total Relative Value of Company = $ 4,895,973 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk's Department Store of Lancaster, S.C., Inc. 90.5263% X $ 4,895,973 = $ 4,432,143 =========== Total Relative Value of Company $ 4,895,973 Total Relative Value of Company Owned by Other Belk Companies - 4,432,143 ----------- Net Relative Value of Company = $ 463,830 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 463,830 / $1,155,623,145 = .0401% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.0401% X 60,000,007) / 324 = 74.3274 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 13 <PAGE> 188 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 71.18 Book value per share(2)................................... 1,082.43 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 70.55 Book value per share...................................... 941.13 </TABLE> - --------------- (1) Based on 3,420 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 3,420 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 14 <PAGE> 189 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 3,341 $ 3,302 $ 3,309 Net income.................................................. 151 194 243 Per common share Net income (loss)(1)...................................... 44.28 56.70 71.18 Dividends................................................. 15.00 15.00 20.00 Book value(2)............................................. 984.83 1,021.73 1,082.43 Total assets................................................ 3,744 3,803 4,019 Shareholders' equity........................................ 3,368 3,494 3,702 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED -------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $2,255 $2,194 Income from operations...................................... 134 164 </TABLE> - --------------- (1) Based on 3,420 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 3,420 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 15 <PAGE> 190 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in downtown Paragould, Arkansas. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Kuhne/Greiner group office in Greenville, South Carolina. The Company also holds approximately $650,000 in marketable securities. Facilities. The Company leases its store building, which contains approximately 28,000 square feet of floor area, on a month-to-month basis. The Company may consider in the future a relocation of the existing downtown store to a shopping center site. Competition. Specific competitors in the Company's market include Wal-Mart and Stage Stores. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 16 <PAGE> 191 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)........... 3,096 90.5% Thomas M. Belk, Jr. (Director and Executive Officer) (a).... 3,096 90.5% H. W. McKay Belk (Director and Executive Officer) (a)....... 3,096 90.5% John R. Belk (Director and Executive Officer) (a)........... 3,096 90.5% Henderson Belk (Director)................................... 0 * Sarah Belk Gambrell (Director).............................. 0 * John A. Kuhne (Director and Executive Officer) (a).......... 3,096 90.5% R. E. Greiner (Director and Executive Officer).............. 0 * Welch Bostick, Jr. (Executive Officer)...................... 0 * Belk's Department Store of Lancaster, S.C., Inc............. 3,096 90.5% All Directors and Executive Officers as a group (8 persons).................................................. 3,096 90.5% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; John A. Kuhne, R. E. Greiner and Welch Bostock, Jr. -- 14 S. Main Street, Greenville, S.C. 29601; Belk's Department Store of Lancaster, S.C., Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 3,096 shares held by Belk's Department Store of Lancaster, S.C., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of such corporation, under authority given by the directors of such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. 17 <PAGE> 192 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 193 BELK-SIMPSON COMPANY OF PARAGOULD, ARKANSAS, INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 36,646 $ 50,145 Accounts receivable, net.................................. 760,035 922,975 Merchandise inventory..................................... 584,256 562,995 Receivable from affiliates, net........................... 1,663,735 1,700,003 Deferred income taxes..................................... 22,496 -- Other..................................................... 31,452 33,467 ---------- ---------- Total current assets........................................ 3,098,620 3,269,585 Loans receivable from affiliates, net....................... 7,560 7,560 Investments................................................. 590,934 647,399 Property, plant and equipment, net.......................... 84,729 74,949 Other noncurrent assets..................................... 21,139 19,330 ---------- ---------- $3,802,982 $4,018,823 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 187,000 $ 197,166 Deferred income taxes..................................... -- 69,150 Accrued income taxes...................................... 1,425 5,572 ---------- ---------- Total current liabilities................................... 188,425 271,888 Deferred income taxes....................................... 96,961 18,706 Other noncurrent liabilities................................ 23,293 26,335 ---------- ---------- Total liabilities........................................... 308,679 316,929 Shareholders' equity: Common stock.............................................. 342,000 342,000 Net unrealized gain (loss) on investments, net of income taxes.................................................. 152,632 185,202 Retained earnings......................................... 2,999,671 3,174,692 ---------- ---------- Total shareholders' equity.................................. 3,494,303 3,701,894 ---------- ---------- $3,802,982 $4,018,823 ========== ========== </TABLE> F-2 <PAGE> 194 BELK-SIMPSON COMPANY OF PARAGOULD, ARKANSAS, INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $3,341,074 $3,302,440 $3,308,927 Operating costs and expenses............................... 3,191,590 3,124,019 3,041,227 ---------- ---------- ---------- Income from operations..................................... 149,484 178,421 267,700 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 58,906 81,367 78,202 Dividend income.......................................... 24,947 24,605 39,968 Gain (loss) on disposal of property, plant and equipment............................................. 3,377 -- -- Gain (loss) on sale of securities........................ 4,838 12,471 840 Miscellaneous, net....................................... (8,826) 76 2,102 ---------- ---------- ---------- Total other expense, net................................... 83,242 118,519 121,112 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 232,726 296,940 388,812 Income tax expense (benefit)............................... 81,286 103,035 145,391 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 151,440 193,905 243,421 ---------- ---------- ---------- Net earnings............................................... 151,440 193,905 243,421 Retained earnings at beginning of period................... 2,756,926 2,857,066 2,999,671 Dividends paid............................................. (51,300) (51,300) (68,400) ---------- ---------- ---------- Retained earnings at end of period......................... $2,857,066 $2,999,671 $3,174,692 ========== ========== ========== </TABLE> F-3 <PAGE> 195 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 196 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 197 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 4, SUBTITLE 3, CHAPTER 27 BUSINESS CORPORATIONS ACT OF 1987 STATE OF ARKANSAS SUBCHAPTER 13 -- DISSENTERS' RIGHTS 4-26-1007. RIGHTS OF DISSENTING SHAREHOLDERS. (a) If a shareholder of a corporation which is a part to a merger or consolidation files with the corporation, prior to or at the meeting of shareholders at which the plan of merger or consolidation is submitted to a vote, a written objection to the plan of merger or consolidation and does not vote in favor thereof, and the shareholder within ten (10) days after the date on which the vote was taken makes written demand on the surviving or new domestic or foreign corporation for payment of the fair value of his shares as of the day prior to the date on which the vote was taken approving the merger or consolidation, then, if the merger or consolidation is effected, the surviving or new corporation shall pay to the shareholder, upon surrender of his certificate or certificates representing the shares, the fair value thereof. (b) The demand shall state the number and class of the shares owned by the dissenting shareholder. (c) Any shareholder failing to make demand within the ten-day period shall be bound by the terms of the merger or consolidation. (d) Within ten (10) days after the merger or consolidation is effected, the surviving or new corporation, as the case may be, shall give notice to each dissenting shareholder who has made demand as herein provided for the payment of the fair value of his shares. (e)(1) If within thirty (30) days after the date on which the merger or consolidation was effected the value of such shares is agreed upon between the dissenting shareholder and the surviving or new corporation, payment shall be made within ninety (90) days after the date on which such merger or consolidation was effected, upon the surrender of his certificate or certificates representing those shares. (2) Upon payment of the agreed value, the dissenting shareholder shall cease to have any interest in those shares or in the corporation. (f)(1) If within the period of thirty (30) days the shareholder and the surviving or new corporation do not so agree, then the dissenting shareholder, within sixty (60) days after the expiration of the thirty-day period, may file a petition in the circuit court of the county in which the registered office of the surviving corporation is located, if the surviving corporation is a domestic corporation or in the Pulaski County Circuit Court if the surviving corporation is a foreign corporation, asking for a finding and determination of the fair value of the shares and shall be entitled to judgment against the surviving or new corporation for the amount of the fair value as of the day prior to the date on which the vote was taken approving such merger or consolidation, together with interest thereon to the date of the judgment. (2) The judgment shall be payable only upon and simultaneously with the surrender to the surviving or new corporation of the certificate or certificates representing the shares. (3) Upon payment of the judgment, the dissenting shareholder shall cease to have any interest in the shares or in the surviving or new corporation. (4) Unless the dissenting shareholder files the petition within the time herein limited, the shareholder and all persons claiming under him shall be bound by the terms of the merger or consolidation. (g) Shares acquired by the surviving or new corporation pursuant to the payment of the agreed value thereof or to payment of the judgment entered, as in this section provided, may be held and disposed of by the corporation as in the case of other treasury shares. A-1 <PAGE> 198 (h) The provisions of this section shall not apply to a merger if, on the date of the filing of the articles of merger, the surviving corporation is the owner of all the outstanding shares of the other domestic or foreign corporations that are parties to the merger. HISTORY. Acts 1965, No. 576, sec. 76; A.S.A. 1947, sec. 64-707. A-2 <PAGE> 199 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 3,308,927 $243,421 $310,609 $322,989 $3,701,894 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $ 3,308,927 243,421 310,609 322,989 3,701,894 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... -- -- -- Gain/loss on sale of securities............. (526) (840) (840) Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... (526) (840) (840) -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. (313) (500) (500) Adjustment for ownership in other Belk entities.................................. (10,737) -------- -------- -------- ---------- Per Model..................................... $242,582 $309,269 $321,649 $3,691,157 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (50,145) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (1,700,003) Loans receivable from affiliates, net..... (7,560) Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (1,757,708) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $(1,757,708) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 200 SUPPLEMENT NO. 1 <PAGE> 201 BELK-SIMPSON COMPANY OF PARAGOULD, ARKANSAS, INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 1 <PAGE> 202 BELK DEPARTMENT STORE OF STUTTGART, ARK., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Department Store of Stuttgart, Ark., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Arkansas law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 5.5939 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 78,600 shares of New Belk Class A Common Stock which will represent approximately 0.1310% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by two-thirds of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 203 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 204 BELK DEPARTMENT STORE OF STUTTGART, ARK., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK DEPARTMENT STORE OF STUTTGART, ARK., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Department Store of Stuttgart, Ark., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Arkansas law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 5.5939 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 205 BELK DEPARTMENT STORE OF STUTTGART, ARK., INC. SUPPLEMENT NO. 2 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 2 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK DEPARTMENT STORE OF STUTTGART, ARK., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 11 DETERMINATION OF EXCHANGE RATIO............................. 12 COMPARATIVE PER SHARE DATA.................................. 14 SELECTED HISTORICAL FINANCIAL INFORMATION................... 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 16 BUSINESS OF THE COMPANY..................................... 16 SECURITY OWNERSHIP OF THE COMPANY........................... 17 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 206 THE COMPANY The Company was incorporated as an Arkansas corporation in 1947 as Belk-Jones Company, Inc. The Company changed its name to Belk Department Store of Stuttgart, Ark., Inc. on August 3, 1996. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger"), and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights under Arkansas law), will be converted, without any action on the part of the Shareholder, into the right to receive 5.5939 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of two-thirds of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 207 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Arkansas Business Corporation Act (the "ABCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of the material differences in the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the ABCA. Authorized Capital Stock. The authorized capital stock of New Belk is 420,000,000 shares, consisting of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 42,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one 3 <PAGE> 208 vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. 4 <PAGE> 209 Pursuant to the ABCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders out of surplus (defined as net assets minus stated capital) or net profits for the fiscal year in which the dividend is declared as long as the distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business, (ii) the corporation's total assets to be less than the sum of its total liabilities or (iii) the highest liquidation preferences of shares entitled to such preference to exceed the corporation's net assets. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The ABCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 10% of all shares entitled to vote at a special meeting. The Company Bylaws authorize the Chairman, President, Secretary or the Company Board, or any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. Under the ABCA, unless the articles of incorporation or the ABCA specifies a different voting requirement, if the majority of the shares represented at the meeting and entitled to vote on the subject matter cast an affirmative vote, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify any different voting requirements than as set forth in the ABCA. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the 5 <PAGE> 210 shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. The ABCA requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by 66 2/3% of the votes entitled to be cast on the amendment by any class of shares entitled to vote as a class. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the ABCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the ABCA, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless the articles of incorporation reserves this power exclusively to the shareholders. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has concurrent power by vote of a majority of the directors to make, alter, amend or rescind the Company Bylaws. The bylaws enacted by the Shareholders may be executed by action of the Company Board and vice versa; provided, however, the Company Board may not re-enact, substantially or otherwise, a bylaw which the Shareholders have repealed or altered, nor may it repeal a bylaw enacted by the Shareholders which limits the powers of the Company Board or enhances or protects the rights of Shareholders, without the consent of the Shareholders. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. The ABCA provides that any action to be taken at a meeting of the shareholders of a corporation may be taken without a meeting if all the shareholders entitled to vote on the proposed corporate action sign a written consent describing such action. The Company Bylaws are consistent with the foregoing ABCA provision. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. 6 <PAGE> 211 Under the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the ABCA permits a vacancy in the board of directors, other than a vacancy occurring through shareholder action in removing a director, to be filled by a majority of the board of directors then in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The ABCA requires a corporation to have at least three directors except when there are less than three record shareholders of the corporation. In such a case, the ABCA requires the corporation to have at least as many directors as record shareholders. The number of directors may be increased or decreased from time to time by amendment to the bylaws, but no decrease may have the effect of shortening the term of any incumbent director. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Neither the ABCA nor the Company Articles provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New 7 <PAGE> 212 Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the ABCA, a majority of the shareholders entitled to elect directors may remove one or more directors with or without cause at a meeting called expressly for that purpose. If a director is elected by a separate class of shareholders, only the vote of a majority of the shareholders of that class may remove him. The Company Bylaws provide that Directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. The Company Articles do not provide for the staggering of the Company Board. Cumulative Voting. Under the DGCL, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. The ABCA does not contain a statute which addresses directly cumulative voting. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. The ABCA does not contain a statute which addresses directly conflict-of-interest transactions. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonable believed that the act was in, or at least not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit director monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. 8 <PAGE> 213 The ABCA concerning indemnification is generally equivalent to the DGCL. The ABCA provides that a director will not be personally liable to the corporation for voting affirmatively for the distribution of assets or repurchase of shares in violation of the ABCA if that director relied and acted in good faith upon certain records and reports in casting his vote in favor of the distribution or repurchase. The Company Bylaws authorize indemnification as provided in the ABCA. In addition, the Company Bylaws provide that the Company shall indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of the foregoing capacities; provided, however, that the Company shall not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company shall likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership, or as a trustee or administrator under an employee benefit plan. The Company shall also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The ABCA requires the affirmative vote of 66 2/3% of the outstanding shares of each class of shares entitled to vote as a class to approve a merger or consolidation. The ABCA and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are substantially similar, except the ABCA requires the affirmative vote of 66 2/3% of the outstanding shares of the corporation and the DGCL requires the affirmative vote of a majority of the outstanding shares of the corporation. Anti-Takeover Provisions. The DGCL contains a business combination statute which is generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of freeze-out mergers. Freeze-out mergers are where the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. 9 <PAGE> 214 The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. The ABCA does not contain a business combination statute. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the ABCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for eleven (11) months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe to an additional issue of stock or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for purchase or receive any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk shall make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The ABCA provides that Shareholders have preemptive rights, except in certain circumstances, unless otherwise provided in the articles of incorporation. The Company Articles do not provide otherwise. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records, and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. The ABCA is equivalent to the DGCL. 10 <PAGE> 215 DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Section 4-26-1007 of the ABCA ("Section 4-26-1007") has the right to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger. The following is a summary of Section 4-26-1007 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Section 4-26-1007, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN SECTION 4-26-1007 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. A Shareholder who wishes to perfect his dissenter's rights in the event that the Merger is effected must: (a) Deliver to the Company, prior to or at the meeting of shareholders at which the Reorganization Agreement and the Merger is submitted to a vote, a written objection to the Merger; (b) Not have voted in favor of the Reorganization Agreement and the Merger, and (c) Within ten days after the date on which the vote on the Reorganization Agreement and the Merger was taken, make a written demand stating the number and class of the shares owned by the Shareholder, on New Belk, for payment of the fair value of his shares as of the day prior to the date on which the vote was taken approving the Reorganization Agreement and the Merger. Any written notice of objection to the Reorganization Agreement and the Merger pursuant to clause (a) of the immediately preceding paragraph should be mailed or delivered by a Shareholder to Belk, Inc., 2801 West Tyvola Road, Charlotte, NC 28217-4500, Attention: Ralph A. Pitts, General Counsel. Because the written objection must be delivered prior to the time the Shareholder votes on the Merger, it is recommended, although not required, that a Shareholder using the mail should use certified or registered mail, return receipt requested, to confirm that he has made timely delivery. Any Shareholder who fails to make the demand on New Belk described in clause (c) of the immediately preceding paragraph within the prescribed 10-day period will be bound by the terms of the Reorganization Agreement and the Merger. If within 30 days after the Merger is effected New Belk and the Shareholder agree upon the value of the Shareholder's shares, New Belk must make payment to the Shareholder within 90 days after the date the Merger is effected upon the Shareholder's surrender of his certificate or certificates representing his shares. If New Belk and the Shareholder do not agree on the value of the Shareholder's shares within 30 days after the date the Merger is effected, then, within 60 days of the expiration of the 30-day period, the Shareholder may file a petition in Pulaski County Circuit Court asking for a finding and determination of the fair market value of the shares. The Shareholder will be entitled to a judgment against New Belk for the amount of the fair value as of the day prior to the date on which the vote was taken approving the Reorganization Agreement and the Merger plus interest thereon to the date of the judgment. The judgment will be payable only upon and simultaneously with the surrender to New Belk of the certificate or certificates representing the shares. Unless the Shareholder files a petition within the required time period, the Shareholder and all persons claiming under him shall be bound by the terms of the Reorganization Agreement and the Merger. 11 <PAGE> 216 DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales..................... $3,686,309 $3,686,309 0.6 $(24,474) $ 2,236,259 EBITDA........................ 19,909 (65,799) 7 (24,474) (436,119) EBIT.......................... (4,873) (90,581) 10 (24,474) (881,336) Net Income.................... 372,565 (94,361) 15 -- (1,415,415) Book Equity................... 1,514,772 1,514,772 1 -- 1,514,772 </TABLE> 12 <PAGE> 217 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- ------------------- -------------------- -------------------- PERCENTAGE OF OTHER TOTAL RELATIVE VALUE RELATIVE OPERATING BELK OF VALUE OF OTHER BELK COMPANIES COMPANIES OWNED BY OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ----------- Total $ N/A =========== Relative Operating Value of Company $ 2,236,259 Relative Operating Value of Other Companies Owned by Company + -- ----------- Total Relative Value of Company = $ 2,236,259 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. 3.6712% X $ 2,236,259 = $ 82,098 Belk's Department Store of Florence, S.C., Incorporated 26.5947% X 2,236,259 = 594,726 Belk-Simpson Company of Paragould, Arkansas, Inc. 2.0380% X 2,236,259 = 45,575 ----------- Total $ 722,399 =========== Total Relative Value of Company $ 2,236,259 Total Relative Value of Company Owned by Other Belk Companies - 722,399 ----------- Net Relative Value of Company = $ 1,513,860 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- PERCENTAGE OF NEW BELK CLASS AGGREGATE NET RELATIVE VALUE A NET RELATIVE VALUE OF OF ALL COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 1,513,860 / $1,155,623,145 = .131% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.131% X 60,000,007) / 14,051 = 5.5939 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 13 <PAGE> 218 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 17.95 Book value per share(2)................................... 72.98 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 5.31 Book value per share...................................... 70.83 </TABLE> - --------------- (1) Based on 20,756 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 20,756 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 14 <PAGE> 219 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $4,540 $4,446 $3,686 Net income.................................................. (253) (190) 373 Per common share Net income (loss)(1)...................................... (12.20) (9.16) 17.95 Dividends................................................. 0.76 0.84 0.95 Book value(2)............................................. 66.92 55.98 72.98 Total assets................................................ 2,684 2,530 1,697 Shareholders' equity........................................ 1,389 1,162 1,515 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $3,031 $1,530 Income (loss) from operations............................... (168) 109 </TABLE> - --------------- (1) Based on 20,756 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 20,756 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 15 <PAGE> 220 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Income from operations increased for the nine months ended November 1, 1997 compared to the same period in 1996. Income from operations for the nine months ended November 2, 1996 included the loss on operations of the Texarkana, Texas store. Comparable store sales decreased in fiscal years 1995 and 1996 due to declining revenues at the Texarkana, Texas store, which was closed in August, 1996. BUSINESS OF THE COMPANY General. The Company operates a retail department store in downtown Stuttgart, Arkansas. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The Company is managed out of the Kuhne/Greiner group office in Greenville, South Carolina. Facilities. The Company leases its store building, which contains approximately 19,000 square feet of floor area. The current term of the lease expires in 2000. The Company believes that the building is adequate to meet its current needs. Competition. The Company's principal competitor in the market is Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 16 <PAGE> 221 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)..... 11,785 56.8% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(c).................................................... 8,526 41.1% H. W. McKay Belk (Director and Executive Officer) (a)(c).... 8,522 41.1% John R. Belk (Director and Executive Officer) (a)(c)........ 8,522 41.1% Sarah Belk Gambrell (Director).............................. 5,600 27.0% Sarah Gambrell Knight (Director)............................ 300 1.4% Leroy Robinson (a).......................................... 1,773 8.5% Katherine McKay Belk (a).................................... 3,042 14.7% Katherine Belk Morris (a)................................... 1,821 8.8% John A. Kuhne (Executive Officer)........................... 0 * R. E. Greiner (Executive Officer)........................... 0 * Welch Bostick, Jr. (Executive Officer)...................... 0 * Belk's Department Store of Florence, S.C., Incorporated..... 5,520 26.6% All Directors and Executive Officers as a group (8 persons).................................................. 17,741 85.5% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrel -- 300 Cherokee Road, Charlotte, N.C. 28207; Sarah Gambrell Knight -- 810 Colville Road, Charlotte, N.C. 28207; John A. Kuhne, R. E. Greiner and Welch Bostick, Jr. -- 14 S. Main Street, Greenville, S.C. 29601; Belk's Department Store of Florence, S.C., Incorporated -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 1,773 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 80 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Includes 5,520 shares held by Belk's Department Store of Florence, S.C., Incorporated, 762 shares held by Belk Enterprises, Inc. and 423 shares held by Belk-Simpson Company of Paragould, Arkansas, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. 17 <PAGE> 222 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 223 BELK DEPARTMENT STORE OF STUTTGART, ARK., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 43,094 $ 40,512 Accounts receivable, net.................................. 1,017,272 613,749 Merchandise inventory..................................... 1,247,198 440,920 Refundable income taxes................................... -- 26,720 Deferred income taxes..................................... 7,497 11,052 Other..................................................... 46,296 21,766 ---------- ---------- Total current assets........................................ 2,361,357 1,154,719 Loans receivable from affiliates, net....................... -- 7,900 Investments................................................. 11,413 3,750 Property, plant and equipment, net.......................... 135,149 112,627 Deferred income taxes....................................... -- 415,824 Other noncurrent assets..................................... 22,343 2,395 ---------- ---------- $2,530,262 $1,697,215 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable............................................. $ 301,677 $ -- Accounts payable and accrued expenses..................... 375,217 129,958 Payables to affiliates, net............................... 301,034 23,939 Accrued income taxes...................................... 5,305 -- ---------- ---------- Total current liabilities................................... 983,233 153,897 Deferred income taxes....................................... 4,636 -- Loans payable to affiliates, net............................ 342,100 -- Other noncurrent liabilities................................ 38,311 28,546 ---------- ---------- Total liabilities........................................... 1,368,280 182,443 Shareholders' equity: Common stock.............................................. 481,200 2,075,600 Retained earnings......................................... 680,782 (560,828) ---------- ---------- Total shareholders' equity.................................. 1,161,982 1,514,772 ---------- ---------- $2,530,262 $1,697,215 ========== ========== </TABLE> F-2 <PAGE> 224 BELK DEPARTMENT STORE OF STUTTGART, ARK., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales................................................. $4,540,488 $4,445,578 $ 3,686,310 Operating costs and expenses.............................. 4,693,079 4,526,647 3,774,462 ---------- ---------- ----------- Income from operations.................................... (152,591) (81,069) (88,152) ---------- ---------- ----------- Other income (expense): Interest, net........................................... (48,938) (60,476) (47,069) Dividend income......................................... 1,254 942 1,580 Gain (loss) on disposal of property, plant and equipment............................................ -- -- 91,399 Gain (loss) on sale of securities....................... 4,750 -- (5,691) Miscellaneous, net...................................... 280 4,718 (4,009) ---------- ---------- ----------- Total other expense, net.................................. (42,654) (54,816) 36,210 ---------- ---------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities....... (195,245) (135,885) (51,942) Income tax expense (benefit).............................. 58,032 54,199 (424,507) ---------- ---------- ----------- Net earnings.............................................. (253,277) (190,084) 372,565 Retained earnings at beginning of period.................. 1,157,364 888,268 680,782 Dividends paid............................................ (15,820) (17,402) (19,775) Retained earnings adjustments............................. -- -- (1,594,400) ---------- ---------- ----------- Retained earnings at end of period........................ $ 888,267 $ 680,782 $ (560,828) ========== ========== =========== </TABLE> F-3 <PAGE> 225 BELK DEPARTMENT STORE OF STUTTGART, ARK., INC. CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company." The Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1997 and 1996 ended on February 1, 1997, February 3, 1996, and January 31, 1995 respectively. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders equity of the subsidiaries are included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholder's equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. F-4 <PAGE> 226 BELK DEPARTMENT STORE OF STUTTGART, ARK., INC. CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. (BSS) in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1995 and 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements F-5 <PAGE> 227 BELK DEPARTMENT STORE OF STUTTGART, ARK., INC. CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. (12) MERGER As of August 3, 1996, Belk Department Store of Stuttgart, Ark., Inc. (Stuttgart) was merged into Belk-Jones Company, Inc. -- Texarkana, Ark. (Texarkana) in a stock for stock exchange. Since this merger was between corporations under common control, it has been accounted for at historical cost in a manner similar to that in a pooling of interests. The name of the surviving corporation was changed to Belk Department Store of Stuttgart, Ark., Inc. The financial statements for the years ended February 3, 1996 and January 31, 1995 represent a combination of Stuttgart and Texarkana, and are presented for comparative purposes only. F-6 <PAGE> 228 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 4, SUBTITLE 3, CHAPTER 27 BUSINESS CORPORATIONS ACT OF 1987 STATE OF ARKANSAS SUBCHAPTER 13 -- DISSENTERS' RIGHTS 4-26-1007. RIGHTS OF DISSENTING SHAREHOLDERS. (a) If a shareholder of a corporation which is a party to a merger or consolidation files with the corporation, prior to or at the meeting of shareholders at which the plan of merger or consolidation is submitted to a vote, a written objection to the plan of merger or consolidation and does not vote in favor thereof, and the shareholder within ten (10) days after the date on which the vote was taken makes written demand on the surviving or new domestic or foreign corporation for payment of the fair value of his shares as of the day prior to the date on which the vote was taken approving the merger or consolidation, then, if the merger or consolidation is effected, the surviving or new corporation shall pay to the shareholder, upon surrender of his certificate or certificates representing the shares, the fair value thereof. (b) The demand shall state the number and class of the shares owned by the dissenting shareholder. (c) Any shareholder failing to make demand within the ten-day period shall be bound by the terms of the merger or consolidation. (d) Within ten (10) days after the merger or consolidation is effected, the surviving or new corporation, as the case may be, shall give notice to each dissenting shareholder who has made demand as herein provided for the payment of the fair value of his shares. (e)(1) If within thirty (30) days after the date on which the merger or consolidation was effected the value of such shares is agreed upon between the dissenting shareholder and the surviving or new corporation, payment shall be made within ninety (90) days after the date on which such merger or consolidation was effected, upon the surrender of his certificate or certificates representing those shares. (2) Upon payment of the agreed value, the dissenting shareholder shall cease to have any interest in those shares or in the corporation. (f)(1) If within the period of thirty (30) days the shareholder and the surviving or new corporation do not so agree, then the dissenting shareholder, within sixty (60) days after the expiration of the thirty-day period, may file a petition in the circuit court of the county in which the registered office of the surviving corporation is located, if the surviving corporation is a domestic corporation or in the Pulaski County Circuit Court if the surviving corporation is a foreign corporation, asking for a finding and determination of the fair value of the shares and shall be entitled to judgment against the surviving or new corporation for the amount of the fair value as of the day prior to the date on which the vote was taken approving such merger or consolidation, together with interest thereon to the date of the judgment. (2) The judgment shall be payable only upon and simultaneously with the surrender to the surviving or new corporation of the certificate or certificates representing the shares. (3) Upon payment of the judgment, the dissenting shareholder shall cease to have any interest in the shares or in the surviving or new corporation. (4) Unless the dissenting shareholder files the petition within the time herein limited, the shareholder and all persons claiming under him shall be bound by the terms of the merger or consolidation. (g) Shares acquired by the surviving or new corporation pursuant to the payment of the agreed value thereof or to payment of the judgment entered, as in this section provided, may be held and disposed of by the corporation as in the case of other treasury shares. A-1 <PAGE> 229 (h) The provisions of this section shall not apply to a merger if, on the date of the filing of the articles of merger, the surviving corporation is the owner of all the outstanding shares of the other domestic or foreign corporations that are parties to the merger. A-2 <PAGE> 230 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statement of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $3,686,309 $ 372,565 $ (4,873) $ 19,909 $1,514,772 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- --------- -------- -------- ---------- Adjusted Shareholders' Statement............... $3,686,309 372,565 (4,873) 19,909 1,514,772 ========== --------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ (62,655) (91,399) (91,399) Gain/loss on sale of securities.............. 3,901 5,691 5,691 Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... (408,172) -- -- -- --------- -------- -------- Total non-operating items...................... (466,926) (85,708) (85,708) --------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... -- -- -- -- --------- -------- -------- ---------- Per Model...................................... $ (94,361) $(90,581) $(65,799) $1,514,772 ========= ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (40,513) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... -- Loans receivable from affiliates, net...... (7,900) Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ 23,939 Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ (24,474) Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ (24,474) ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 231 SUPPLEMENT NO. 2 <PAGE> 232 BELK DEPARTMENT STORE OF STUTTGART, ARK., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: --------------------------, 1998 -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 2 <PAGE> 233 BELK-LINDSEY STORES, INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Lindsey Stores, Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $1.00 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Florida law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 5.6854 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 1,599,325 shares of New Belk Class A Common Stock which will represent approximately 2.6655% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 234 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 235 BELK-LINDSEY STORES, INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-LINDSEY STORES, INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Lindsey Stores, Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $1.00 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Florida law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 5.6854 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 236 BELK-LINDSEY STORES, INC. SUPPLEMENT NO. 3 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 3 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-LINDSEY STORES, INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 11 DETERMINATION OF EXCHANGE RATIO............................. 13 COMPARATIVE PER SHARE DATA.................................. 15 SELECTED HISTORICAL FINANCIAL INFORMATION................... 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 17 General................................................... 17 Results of Operations..................................... 17 Comparison of Nine Months Ended November 1, 1997 and November 2, 1996........................................ 17 Comparison of Fiscal Years Ended February 1, 1997 and February 3, 1996........................................ 18 Comparison of Fiscal Years Ended February 3, 1996 and January 31, 1995........................................ 18 Seasonality and Quarterly Fluctuations.................... 19 Liquidity and Capital Resources........................... 19 Impact of Inflation....................................... 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 22 INDEX TO HISTORICAL FINANCIAL STATEMENTS.................... F-1 Report of KPMG Peat Marwick LLP, Independent Auditors..... F-2 Balance Sheets............................................ F-3 Statements of Operations.................................. F-4 Statements of Shareholders' Equity........................ F-5 Statements of Cash Flows.................................. F-6 Notes to Financial Statements............................. F-7 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 237 THE COMPANY The Company was incorporated as a Florida corporation in 1956. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, NC 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $1 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Florida law), will be converted, without any action on the part of the Shareholder, into the right to receive 5.6854 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 238 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each shareholder who does not exercise appraisal rights as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Florida Business Corporation Act (the "FBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the FBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 1,409,244 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder (as defined in the New Belk Certificate), whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B 3 <PAGE> 239 Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution, as the case may be, New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the FBCA, a corporation subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as giving effect to the distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to 4 <PAGE> 240 be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The FBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 10%, unless a greater percentage not to exceed 50% is required by the articles of incorporation, of all votes entitled to be cast on the proposed corporate act to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. Under the FBCA, unless the articles of incorporation or the FBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify any different voting requirements than those set forth in the FBCA. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class, or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the 5 <PAGE> 241 shares of the series so affected by the amendment would be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the FBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the FBCA requires that an amendment to the articles of incorporation must be recommended by the board of directors to the shareholders and must be approved (i) by a majority (unless the articles of incorporation or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the FBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The FBCA permits the board of directors of a corporation to amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or FBCA reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. The provisions of the FBCA concerning action by written consent are equivalent to the DGCL. The Company Articles do not change the state law requirement. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less 6 <PAGE> 242 than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the FBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. Whenever the holders of shares of any voting group are entitled to elect a class of one or more directors by the provisions of the articles of incorporation, vacancies in such class may be filled by holders of shares of that voting group or by a majority of the directors then in office elected by such voting group or by a sole remaining director so elected. If no director elected by such voting group remains in office, unless the articles of incorporation provide otherwise, directors not elected by such voting group may fill vacancies. The Company Articles are silent with respect to filling vacancies. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation. If the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The FBCA requires a corporation to have at least one director. The number of directors is set by the articles of incorporation or the bylaws and may be increased or decreased by amendment or in the manner provided in the articles of incorporation or the bylaws. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The FBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director must be a natural person and at least 18 years of age but does not have to be a resident of Florida or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or bylaws. The Company Bylaws do not require directors of the Company to be residents of Florida or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each 7 <PAGE> 243 class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The FBCA concerning the classification of the board of directors is equivalent to the DGCL. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the FBCA, the shareholders may remove one or more directors with or without cause unless the articles of incorporation provide that directors may be removed only for cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the FBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation. Neither the New Belk Certificate nor the Company Articles provide for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the FBCA generally permits transactions involving a Florida corporation and an interested director of that corporation if: (i) the fact of such relationship or interest is disclosed or known to the board of directors or committee which authorizes, approves or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested directors; (ii) the fact of such relationship or interest is disclosed or known to the shareholders entitled to vote and they authorize, approve or ratify such contract or transaction by vote or written consent; or (iii) the contract or transaction is fair and reasonable as to the corporation at the time it is authorized by the board, a committee or the shareholders. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to 8 <PAGE> 244 indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. The FBCA concerning indemnification is similar in all material respects to the DGCL. However, the FBCA differs from the DGCL in terms of the extent to which a director may limit his personal liability. Under the FBCA, a director is not personally liable for monetary damages to the corporation or any other person for any statement, vote, decision or failure to act, regarding corporate management or policy unless the director breached or failed to perform his duties as a director and the director's breach of, or failure to perform, those duties constitutes (i) a violation of the criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, (ii) a transaction from which the director derived an improper personal benefit, either directly or indirectly, (iii) a circumstance involving unlawful distributions, (iv) in a proceeding by or in the right of the corporation to procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the corporation, or willful misconduct, or (v) in a proceeding by or in the right of someone other than the corporation or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety or property. The Company Bylaws authorize indemnification as provided in the FBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company shall not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of partnership, or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or 9 <PAGE> 245 consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The FBCA concerning the approval of mergers is similar in all material respects to the DGCL, except that the FBCA provides for only two criteria which the surviving corporation must meet before it is exempt from the requirement of approval of the merger by its shareholders: (i) the articles of incorporation of the surviving corporation must not differ from its articles before the merger; and (ii) each shareholder of the surviving corporation whose shares were outstanding immediately prior to the effective date of the merger must hold the same number of shares, with identical designations, preferences, limitations and relative rights, immediately after the merger. The FBCA and DGCL provisions concerning shareholder approval of the sale of substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. The DGCL and the FBCA contain business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL and the FBCA, "business combinations" and "affiliated transactions," respectively, generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The FBCA defines "interested shareholder" as any person who is the beneficial owner of more than 10% of the outstanding voting shares of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of 10 <PAGE> 246 stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. The FBCA provides that, except in certain circumstances, an affiliated transaction must be approved by the affirmative vote of the holders of 66 2/3% of the voting shares other than the shares beneficially owned by the interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the FBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The FBCA concerning preemptive rights is equivalent to the DGCL. The Company Articles do not grant preemptive rights to any Shareholder. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the FBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; (iii) the record of shareholders; and (iv) any other books or records. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Section 607.1302 of the FBCA has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined 11 <PAGE> 247 immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Section 607.1302 of the FBCA and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Section 607.1302 of the FBCA, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN SECTION 607.1302 OF THE FBCA WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. A Shareholder may dissent as to all or less than all of the shares of Common Stock that are registered in his or her name. Any Shareholder intending to enforce the right to dissent (i) must not vote in favor of the Reorganization Agreement, and (ii) must file a written notice of intent to demand payment for his or her shares (the "Objection Notice") with the Company, 2801 West Tyvola Road, Charlotte, NC 28217-4500, Attention: Ralph A. Pitts, General Counsel, before the vote on the proposal to approve the Reorganization Agreement and the transactions contemplated thereby is taken at the meeting. The Objection Notice must state that the Shareholder intends to demand payment for his or her shares of Common Stock if the Merger is effected. A VOTE AGAINST APPROVAL OF THE REORGANIZATION AGREEMENT AND THE MERGER, IN AND OF ITSELF, WILL NOT CONSTITUTE AN OBJECTION NOTICE SATISFYING THE REQUIREMENTS OF THE FBCA. If the Reorganization Agreement and the Merger are approved by the Shareholders at the Special Meeting, each Shareholder who has properly filed an Objection Notice and not voted in favor of the Reorganization Agreement and the Merger will be notified by the Company of such approval within 10 days of the Special Meeting. Within 20 days following receipt of such notice, any Shareholder electing to dissent must file a notice of such election, stating the Shareholder's name, address, the number, classes and series of shares as to which the Shareholder dissents, and a demand for payment of the fair value of such shares ("Election Notice"), and deposit certificates representing the Common Stock as to which such Election Notice is given with the Company. Within 10 days following the expiration of the period in which Shareholders may file their Election Notices or 10 days after the Merger is consummated, whichever is later (but in no case later than 90 days following the date the Shareholders approve the Reorganization Agreement and the Merger), the Company must make a written offer to each Shareholder who has properly filed an Election Notice to pay an amount which the Company estimates to be a fair value for the Shareholder's shares. This offer will be accompanied by certain of the Company's financial statements. If the Merger is not consummated within 90 days following the date of approval of the Reorganization Agreement and the Merger, any offer to pay by the Company to dissenting shareholders will be conditional upon consummation of the Merger. Any Shareholder who accepts such offer within 30 days will receive payment for the dissenting Shareholder's shares within 90 days of such offer to pay or consummation of the Merger, whichever is later. In the event (i) that the Company fails to make any payment offer within the time period set forth above or (ii) a dissenting Shareholder fails to accept such offer within 30 days and makes a written demand for payment to the Company within 60 days following the consummation of the Merger, the Company must institute proceedings in state circuit court in St. Lucie County, Florida (the "Court") requesting that the fair value of such dissenting Shareholder's shares be determined. If the Company fails to file such action, any such dissenting Shareholder will have the right to file an action in such Shareholder's own name for determination as to the fair value of such Shareholder's shares. All dissenting Shareholders who have not accepted payment offers by the Company must be made a party to such court action. The court may, in its discretion, appoint an appraiser to receive evidence and recommend a decision on the question of fair value. The judgment may, in the discretion of the court, include a fair rate of interest. The Company will bear the costs and expenses of the proceeding, as determined by the court, except that the court may assess any portion of the costs and expenses against any or all dissenting Shareholders who rejected the Company's offer to pay for their shares, if the court finds that the rejection of the Company's offer was arbitrary, vexatious or not in good faith. The court's determination of the expenses of the proceeding will include reasonable compensation for, and expenses of, the appraisers, but will not include attorneys' or experts' fees and expenses for any party. If the fair value of the 12 <PAGE> 248 shares as determined by the court materially exceeds the amount the Company offered for the shares, the court may, in its discretion, award to any Shareholder who is a party to the action attorneys' fees and compensation for experts employed by the Shareholder in the proceeding. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ------------ ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $89,591,732 $89,591,732 0.6 $(13,667,001) $67,422,040 EBITDA............... 21,807,460 3,748,276 7 (13,667,001) 39,904,933 EBIT................. 19,985,687 1,926,503 10 (13,667,001) 32,932,031 Net Income........... 12,126,977 958,123 15 -- 14,371,845 Book Equity.......... 49,538,411 48,910,683 1 -- 48,910,683 </TABLE> 13 <PAGE> 249 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk-Simpson Company, Greenville, South Carolina 22.1587% X $42,976,855 = $ 9,523,112 ----------- Total $ 9,523,112 =========== Relative Operating Value of Company $67,422,040 Relative Operating Value of Other Companies Owned by Company + 9,523,112 ----------- Total Relative Value of Company = $76,945,152 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. 56.1613% X $76,945,152 = $43,213,397 Belk of Waycross, Ga., Inc. .9672 X 76,945,152 = 744,214 Belk Brothers Company 2.4114% X 76,945,152 = 1,855,455 Belk of Statesboro, Ga., Inc. .4269% X 76,945,152 = 328,479 ----------- Total $46,141,545 =========== Total Relative Value of Company $76,945,152 Total Relative Value of Company Owned by Other Belk Companies - 46,141,545 ----------- Net Relative Value of Company = $30,803,607 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $30,803,607 / $1,155,623,145 = 2.6655% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (2.6655% X 60,000,007) / 281,303 = 5.6854 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 14 <PAGE> 250 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share, and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR NINE MONTHS ENDED FEBRUARY 1, ENDED NOVEMBER 1, 1997 1997 ----------------- ----------------- <S> <C> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $17.26 $ 1.15 Book value per share(2)................................... 70.50 71.39 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 0.28 Book value per share(4)................................... 12.66 12.79 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 5.40 1.60 Book value per share...................................... 71.99 72.71 </TABLE> - --------------- (1) Based on 702,673 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997 and the nine-month period ended November 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 702,673 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the periods presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying the New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 15 <PAGE> 251 SELECTED HISTORICAL FINANCIAL INFORMATION The following selected historical financial information of the Company presented below under the captions "Selected Statement of Income Data" and "Selected Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended February 1, 1997, are derived from the financial statements of the Company. The financial statements as of February 1, 1997 and for the year then ended have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Such financial statements, and the report thereon, are included elsewhere in this Prospectus Supplement. The selected data presented below for, and as of the end of, each of the years in the four-year period ended February 3, 1996 and for the nine-month periods ended November 2, 1996 and November 1, 1997, and as of November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. The information presented below under the caption "Selected Operating Data" is unaudited. Selected historical combined and pro forma financial data for the Belk Companies is included in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED ----------------------------------------------------------------------- ------------------------- FEBRUARY 2, FEBRUARY 1, JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1993 1994 1995 1996 1997 1996 1997 ------------ ------------ ------------ ------------ ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> SELECTED STATEMENT OF INCOME: Revenues............. $134,926,143 $127,163,297 $117,678,112 $105,285,005 $90,167,700 $60,895,636 $57,489,697 Cost of goods sold... 95,002,474 91,660,737 83,542,112 72,993,019 62,875,001 43,314,545 39,439,488 Depreciation and amortization....... 3,334,800 3,305,822 2,914,430 2,618,645 1,821,773 1,392,776 1,077,926 Income (loss) from continuing operations......... 2,753,558 (492,253) (1,672,429) 670,523 12,126,977 10,158,243 810,741 Net income (loss).... 2,753,558 (216,587) (1,672,429) 670,523 12,126,977 10,158,243 810,741 Income (loss) per share(1)........... 3.92 (0.31) (2.38) 0.95 17.26 14.46 1.15 Dividends per share.............. -- -- -- -- 0.26 0.26 0.26 Weighted average number of shares outstanding ....... 702,673 702,673 702,673 702,673 702,673 702,673 702,673 SELECTED BALANCE SHEET DATA: Accounts receivable -- net... $ 19,147,975 $ 18,231,022 $ 16,004,890 $ 14,523,053 $14,221,102 $12,588,094 $11,625,470 Merchandise inventories........ 34,863,759 31,403,701 30,268,311 24,884,473 20,792,057 23,932,459 21,770,254 Working capital...... 45,235,051 40,044,212 39,676,281 36,404,047 42,617,870 35,101,202 41,496,213 Total assets......... 81,742,139 70,221,668 65,635,428 63,007,188 74,337,001 60,464,761 64,623,305 Short-term debt...... -- -- -- -- 5,000,000 -- -- Long-term debt....... 20,800,000 15,400,000 12,673,125 8,583,375 -- -- -- Capitalized lease obligations........ 3,255,333 2,901,973 2,575,307 1,525,448 1,371,408 1,409,919 1,243,177 Shareholders' equity............. $ 39,223,468 $ 38,150,905 $ 36,478,476 $ 37,594,129 $49,538,411 $47,569,676 $50,166,457 Book value per share(2)........... $ 55.82 $ 54.29 $ 51.91 $ 53.50 $ 70.50 $ 67.70 $ 71.39 SELECTED OPERATING DATA: Number of stores at end of period...... 26 24 21 20 17 17 16 Comparable store net revenue increases (decreases)........ (2.4)% 0.5% (2.6)% (4.4)% 1.0% 0.0% 5.0% </TABLE> - --------------- (1) Based on the weighted average number of shares of Common Stock outstanding at the end of each period presented. (2) Based on the number of shares of Common Stock outstanding at the end of each period presented. 16 <PAGE> 252 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the historical financial condition and results of operations of Belk-Lindsey Stores, Inc. for each of the fiscal years ended January 31, 1995, February 3, 1996, and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 which should be read in conjunction with the historical financial statements, including the notes thereto, included elsewhere in this Proxy Statement/Prospectus. GENERAL Certain Components of Net Income. Revenues include sales from retail operations and leased departments. Cost of goods sold include cost of merchandise, buying, and occupancy expense. Selling, general, and administrative expense ("SG&A") includes payroll, advertising, credit, and depreciation expense. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship to revenues of certain items in the Company's statements of income and other pertinent financial data. <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995(A) 1996(A) 1997(A) 1996 1997 ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold.......................... 71.0 69.3 69.7 71.1 68.6 Selling, general and administrative expenses.................................. 29.5 29.0 28.2 31.5 29.1 Income (loss) from operations............... (0.5) 1.7 1.1 (4.1) 2.3 Interest expense, net....................... 1.4 1.3 0.4 0.5 0.2 Income tax expense (benefit)................ (0.9) 0.1 8.3 9.8 0.4 Net income (loss)........................... (1.4) 0.6 13.4 16.7 1.4 Comparable stores revenues increase (decrease)................................ (2.6) (4.4) 1.0 0.0 5.0 Number of stores Opened.................................... 0 0 0 0 0 Closed.................................... 4 1 3 3 1 Total -- end of period...................... 21 20 17 17 16 </TABLE> - --------------- (a) The fiscal years ended February 1, 1997 and January 31, 1995 consisted of 52 weeks. The fiscal year ended February 3, 1996 consisted of 368 days. COMPARISON OF NINE MONTHS ENDED NOVEMBER 1, 1997 AND NOVEMBER 2, 1996 Revenues. The Company's revenues for the nine months ended November 1, 1997 decreased 5.6%, or $3.4 million, compared to the same period in 1996 from $60.9 million to $57.5 million. The decrease was primarily attributable to the closing of three stores which contributed to a decrease in revenues of $5.9 million. Comparable store revenues increased 5.0% for the nine months ended November 1, 1997 compared to the same period in 1996. The increase in comparable store revenues is primarily attributed to an increase in revenues from the newly remodeled Gainesville Oaks Mall and Leesburg Lake Square stores. Cost of Goods Sold. As a percentage of revenues, cost of goods sold decreased from 71.1% for the nine months ended November 2, 1996 to 68.6% for the nine months ended November 1, 1997 due to better inventory management and lower markdowns. Cost of goods sold decreased 8.9%, or $3.9 million, from $43.3 million for the nine months ended November 2, 1996 to $39.4 million for the nine months ended November 1, 1997 primarily due to a decrease in revenues. Selling, General and Administrative Expenses. As a percentage of revenues, SG&A decreased from 31.5% of revenues for the nine months ended November 2, 1996 to 29.1% for the nine months ended ended 17 <PAGE> 253 November 1, 1997. SG&A decreased 12.8%, or $2.5 million, from $19.2 million for the nine months ended ended November 2, 1996 to $16.7 million for the nine months ended November 1, 1997. The decrease is primarily attributable to the closed stores, which contributed $2.2 million of the decrease. Excluding the impact of the closed stores, SG&A decreased 1.8% or $0.3 million. This decrease was attributable to decreases in payroll and depreciation expense offset by an increase in bad debt expense, net. Interest Expense, Net. Interest expense, net decreased 68.3%, or $0.2 million, from 0.5% of revenues for the nine months ended November 2, 1996 to 0.2% of revenues for the nine months ended November 1, 1997. This decrease was primarily attributable to a decrease in average outstanding borrowings. Income Taxes. The effective income tax rate was 23.3% for the nine months ended November 1, 1997 and 37.1% for the nine months ended November 2, 1996. The Company's effective income tax rate of 23.3% for the nine months ended ended November 1, 1997 differs from the federal income tax statutory rate of 34.0% principally because of permanent differences related to deferred compensation insurance. Net Income. Net income decreased $9.3 million to 1.4% of revenues for the nine months ended ended November 1, 1997 compared to 16.7% of revenues for the nine months ended November 2, 1996. A gain of $18.9 million on the sale of property and fixtures of the closed stores was recognized in the nine months ended November 2, 1996. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 Revenues. The Company's revenues decreased 14.4%, or $15.1 million, from $105.3 million in fiscal year 1996 to $90.2 million in fiscal year 1997. The decrease was primarily attributable to the closing of four stores. The four stores contributed a decrease in revenues of $13.7 million. On a comparable store basis, revenues increased 1.0% compared to the first 52 weeks of fiscal year 1996. Cost of Goods Sold. As a percentage of revenues, cost of goods sold increased from 69.3% in fiscal year 1996 to 69.7% in fiscal year 1997 primarily due to merchandise increases resulting from higher markdowns. Cost of goods sold decreased 13.9%, or $10.1 million, from $73.0 million in fiscal year 1996 to $62.9 million in fiscal year 1997 primarily due to a decrease in revenues. The decrease in cost of goods sold associated with the closed stores was $9.5 million. Cost of goods sold for the comparable stores decreased 1.1% or $0.6 million. Selling, General and Administrative Expenses. As a percentage of revenues, SG&A decreased from 29.0% fiscal year 1996 to 28.2% in fiscal year 1997. SG&A decreased 16.8%, or $5.1 million primarily due to the impact of the closed stores, which contributed $4.9 million of the decrease. Excluding the impact of the closed stores, SG&A decreased 1.1% or $0.2 million. This decrease was attributable to decreases in payroll expense realized through efficiencies implemented in the retail department stores and depreciation expense, partially offset by an increase in bad debt expense, net. Interest Expense, Net. Interest expense, net was 1.3% of revenues in fiscal year 1996 as compared to 0.4% of revenues in fiscal year 1997. This decrease was primarily attributable to a decrease in average outstanding borrowings. Income Taxes. The effective income tax rate decreased to 38.2% in fiscal year 1997 from 13.7% in fiscal year 1996. The Company's effective income tax rate of 13.7% for fiscal year 1996 differed from the federal income tax statutory rate of 34.0% principally because of permanent differences related to deferred compensation insurance and adjustments made to revalue the deferred tax assets related to net operating carryovers. Net Income. Net income increased $11.5 million to 13.4% of revenues in fiscal year 1997 compared to 0.6% of revenues in fiscal year 1996. A gain of $18.9 million on the sale of property and fixtures of the closed stores was recognized in fiscal year 1997. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 3, 1996 AND JANUARY 31, 1995 Revenues. The Company's revenues decreased 10.5%, or $12.4 million, from $117.7 million in fiscal year 1995 to $105.3 million in fiscal year 1996. The decrease was primarily attributable to the closing of four 18 <PAGE> 254 stores. The four stores contributed a decrease in revenues of $8.9 million. Adjusting for the additional days in fiscal year 1996, comparable store revenues decreased 4.4% in fiscal year 1996 largely because of a decrease in revenues at the Gainesville Shopping Center store, which was converted to an outlet center in May, 1995. Cost of Goods Sold. As a percentage of revenues, cost of goods sold decreased from 71.0% in fiscal year 1995 to 69.3% in fiscal year 1996. Cost of merchandise decreases were experienced due to better inventory management and lower markdowns. Cost of goods sold decreased 12.6%, or $10.5 million, from $83.5 million in fiscal year 1995 to $73.0 million in fiscal year 1996 primarily due to a decrease in revenues. The four closed stores contributed a decrease in cost of goods sold of $7.0 million. Selling, General and Administrative Expenses. SG&A decreased 12.2%, or $4.2 million, from 29.5% of revenues in fiscal year 1995 to 29.0% of revenues in fiscal year 1996. The decrease is primarily attributable to the closed stores, which contributed $3.4 million of the decrease. Excluding the impact of the closed stores, SG&A decreased 2.5% or $0.8 million. This decrease was primarily attributable to decreases in selling payroll and advertising expense. Interest Expense, Net. Interest expense, net was 1.3% of revenues in fiscal year 1996 as compared to 1.4% of revenues in fiscal year 1995. Interest expense was $1.4 million in fiscal year 1996 as compared to $1.6 million in fiscal year 1995. Income Taxes. The effective income tax rate decreased from 38.9% in fiscal year 1995 to 13.7% in fiscal year 1996. The Company's effective income tax rate of 13.7% in fiscal year 1996 differed from the federal income tax statutory rate of 34.0% principally because of permanent differences related to deferred compensation insurance. Net Income. Net income increased $2.3 million to 0.6% of revenues in fiscal year 1996 compared to (1.4%) of revenues in fiscal year 1995. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenues, operating income, and net income. The highest revenue period for the Company is the fourth quarter which includes the Christmas selling season. A disproportionate amount of the Company's revenues and a substantial amount of the Company's operating and net income are realized during the fourth quarter. If for any reason the Company's revenues were below seasonal norms during the fourth quarter, the Company's annual results of operations could be adversely affected. The Company's inventory levels generally reach their highest in anticipation of increased revenues during these months. The following table illustrates the seasonality of revenues by quarter as a percentage of the full year for the fiscal years indicated. <TABLE> <CAPTION> 1995 1996 1997 ---- ---- ---- <S> <C> <C> <C> First quarter............................................... 25.2% 24.8% 25.8% Second quarter.............................................. 21.9 21.1 22.5 Third quarter............................................... 19.1 19.5 19.2 Fourth quarter.............................................. 33.8 34.6 32.5 </TABLE> The Company's quarterly results of operations could also fluctuate significantly as a result of a variety of factors, including the timing of new store openings and remodelings. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash on hand, cash flow from operations and borrowings under credit facilities. During the nine months ended November 1, 1997 and November 2, 1996, net cash used by operations was $36 thousand and $8.7 million, respectively. The decrease in cash used by operations for the nine months ended November 1, 1997 is attributable to an increase in net income (excluding the gain on sale of property 19 <PAGE> 255 and equipment for the nine months ended November 2, 1996) and a decrease in accounts receivable from customers. This decrease was partially offset by an increased use of cash to fund an additional investment in inventory and income taxes. In fiscal year 1997, the Company had sufficient cash flows from operations and credit facilities to fund its working capital needs and capital expenditures. Net cash provided (used) by operations was $4.0 million, $5.5 million, and $(3.2) million for the 1995, 1996, and 1997 fiscal years, respectively. The increase in cash flow from operations in fiscal year 1996 was primarily attributable to increased net income and a reduction in merchandise inventory as a result of store closings. The decrease in cash flow from operations in fiscal year 1997 is primarily attributable to a decrease in net income (excluding the gain on sale of property and equipment in fiscal year 1997). Investing activities included capital expenditures, primarily for new, relocated, and remodeled stores and sales of property and equipment related to store closings. Capital expenditures, primarily for new and remodeled stores, amounted to $2.1 million in the first nine months of fiscal years 1998 and 1997. Capital expenditures amounted to $0.6 million, $2.6 million and $3.1 million for the 1995, 1996 and 1997 fiscal years, respectively. In fiscal year 1995, the Belk Lindsey Lake Square Mall store was expanded to 67,000 square feet. In fiscal year 1996, the Belk Lindsey of Oaks Mall store was remodeled and the Orlando Colonial, Cocoa, Sarasota Gulf Gate and Port Charlotte stores were closed. In fiscal year 1997, the Daytona Volusia Mall and Orlando Florida Mall stores were closed resulting in net proceeds on the sale of property and fixtures of $19.9 million. The Ocala, Florida store was remodeled during the nine months ended November 1, 1997. Financing activities included payments or additional borrowings on credit facilities and capital lease obligations. The Company's total indebtedness at November 1, 1997 was $1.2 million of capital lease obligations, comprised of $0.2 million of current installments on capital lease obligations and $1.0 million of capital lease obligations. IMPACT OF INFLATION While it is difficult to determine the precise effects of inflation, management does not believe inflation had a material impact on the financial statements for the periods presented. BUSINESS OF THE COMPANY General. The Company operates 14 retail department stores in the following locations in Florida: Crystal River Mall in Crystal River; Bell Air Plaza in Daytona Beach; Orange Blossom Mall in Fort Pierce; Oaks Mall in Gainesville; Lakeland Square Mall and Southgate Shopping Center in Lakeland; Lake Square Mall and Palm Plaza Shopping Center in Leesburg; Melbourne Square Mall in Melbourne; Paddock Mall in Ocala; Ormond Beach Shopping Center in Ormond Beach; Lake Shore Mall in Sebring; Miracle City Mall in Titusville; and Northgate Mall in Winter Haven. The stores at Paddock Mall in Ocala and Oaks Mall in Gainesville were recently renovated. The stores are managed out of the Bergren group office in Gainesville, Florida. The Company also operates the Bergren group office in a facility adjacent to the Gainesville Shopping Center store. The Bergren group office provides buying advertising, accounting, personnel and other services to stores in the Bergren group area. The Company also operates two clearance centers in Florida at the Gainesville Shopping Center in Gainesville and Haines City Mall in Haines City. The clearance centers generally sell items that are out of season or are otherwise unsuitable for sale at the traditional Belk department stores. The Company sold two stores in fiscal year 1997. The Company's store in the Florida Mall in Orlando was sold to Florida Mall Associates for $14,000,000, and the store in the Volusia Mall in Daytona Beach was sold to Dillard Department Stores for $5,900,000. The net proceeds realized by the Company from the sale of these stores was approximately $19,800,000. Facilities. The Company owns the store property and building, together with an adjacent parking area, at Orange Blossom Mall in Fort Pierce, Lakeland Square in Lakeland and Melbourne Square Mall in 20 <PAGE> 256 Melbourne. The Company leases the store buildings at all other locations. The leases have termination dates ranging from 1999 through 2015. Six stores do not have any remaining options to renew; however, the Company believes that options to extend at market rates will be available. The floor space of the owned and leased stores ranges from 13,000 to 100,000 square feet. The Company believes its facilities are adequate to meet its current needs. Competition. Specific competitors in the Company's market include Burdine's, Dillard, Penney and Sears. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 21 <PAGE> 257 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)........................................... 443,581 63.1% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(d)(e)................................................. 424,458 60.4% H. W. McKay Belk (Director and Executive Officer) (a)(d)(e)(f).............................................. 425,052 60.5% John R. Belk (Director and Executive Officer) (a)(d)(e)..... 424,552 60.4% Henderson Belk (Director) (b)(c)............................ 13,692 1.9% David Belk Cannon (Director) (h)............................ 4,219 * James K. Glenn, Jr. (Director) (g).......................... 2,750 * Byron L. Bergren (Director and Executive Officer)........... 200 * Dell B. Funari (Director) (i)............................... 160,488 22.8% R. E. Hardaway, III (Director) (j).......................... 14,170 2.1% Leroy Robinson (Director) (a)............................... 2,901 * James Madden (Executive Officer)............................ 0 * Barnett Banks Trust Company, N.A., Dell B. Funari and E. Jackson Boggs, Co-Personal Representatives of Estate of Edwin Colin Lindsey....................................... 153,985 21.9% Belk Enterprises, Inc....................................... 394,630 56.2% All Directors and Executive Officers as a group (11 persons).................................................. 626,657 89.2% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P.O. Box 2736, Winston-Salem, N.C. 27102; D. B. Funari -- 2807 Bayshore Blvd., Tampa, Fla. 33629; R. E. Hardaway, III -- 3419 Beach Drive, Tampa, Fla. 33629; Byron L. Bergren and James Madden -- 1312 N. Main Street, Gainesville, Fla. 32601; Barnett Banks Trust Company, N.A., Dell B. Funari and E. Jackson Boggs, Co-Personal Representatives of Estate of Edwin Colin Lindsey -- P.O. Box 44301, Jacksonville, FL 32231-4301; Belk Enterprises, Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 2,901 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 12,550 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 22 <PAGE> 258 (c) Includes 1,122 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 394,630 shares held by Belk Enterprises, Inc., 3,000 shares held by Belk of Statesboro, Ga., Inc. and 6,796 shares held by Belk of Waycross, Ga., Inc. which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (e) Includes 16,944 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (f) Includes 594 shares held by H. W. McKay Belk as custodian for his minor children. (g) Includes 906 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al and 1,844 shares held by John Belk Stevens Trust U/W ITEM III, Section B f/b/o Mary S. Whelchel. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (h) Includes 1,469 shares held by Residuary Trust U/W Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (i) Includes 153,985 shares held by Barnett Banks Trust Company, N. A., Dell B. Funari and E. Jackson Boggs, Co-Personal Representatives Estate of Edwin Colin Lindsey. The Co-Personal Representatives named have voting and investment power with respect to such shares. (j) Includes 4,319 shares held by R. E. Hardaway, III's spouse, Love Hardaway. 23 <PAGE> 259 INDEX TO HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Report of KPMG Peat Marwick LLP, Independent Auditors....... F-2 Balance Sheets.............................................. F-3 Statements of Operations.................................... F-4 Statements of Shareholders' Equity.......................... F-5 Statements of Cash Flows.................................... F-6 Notes to Financial Statements............................... F-7 </TABLE> F-1 <PAGE> 260 INDEPENDENT AUDITORS' REPORT The Board of Directors of Belk-Lindsey Stores, Inc.: We have audited the accompanying balance sheet of Belk-Lindsey Stores, Inc., as of February 1, 1997, and the related statements of operations, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Belk-Lindsey Stores, Inc. at February 1, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in note 1 to the financial statements, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," during fiscal year 1997. KPMG Peat Marwick LLP Charlotte, North Carolina November 14, 1997 F-2 <PAGE> 261 BELK-LINDSEY STORES, INC. BALANCE SHEETS <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents........................... $ 1,236,201 $10,998,480 $ 3,518,927 Accounts receivable, net............................ 14,523,053 14,221,102 11,625,470 Merchandise inventory............................... 24,884,473 20,792,057 21,770,254 Receivables from affiliates......................... 7,000,223 14,911,207 12,408,320 Prepaid income taxes................................ 54,100 -- 688,763 Deferred income taxes............................... 382,692 38,862 38,484 Prepaid expenses and other current assets........... 1,270,654 989,697 462,193 ----------- ----------- ----------- Total current assets.................................. 49,351,396 61,951,405 50,512,411 Deferred income taxes................................. 2,043,761 1,662,329 1,646,146 Investments........................................... 627,728 627,728 627,728 Property and equipment, net........................... 10,057,210 9,350,358 10,412,175 Other noncurrent assets............................... 927,093 745,181 1,424,845 ----------- ----------- ----------- Total assets.......................................... $63,007,188 $74,337,001 $64,623,305 =========== =========== =========== LIABILITIES, DEFERRED INCOME AND SHAREHOLDERS' EQUITY Current liabilities: Line of credit...................................... $ -- $ 5,000,000 $ -- Accounts payable.................................... 6,759,519 6,995,985 5,757,118 Accrued expenses.................................... 2,061,711 1,938,953 3,074,012 Payables to affiliates.............................. 2,282,324 4,249,009 -- Accrued income taxes................................ -- 978,613 -- Current installments of long-term debt and capital lease obligations................................ 1,843,795 170,975 185,068 ----------- ----------- ----------- Total current liabilities............................. 12,947,349 19,333,535 9,016,198 Long-term debt and capital lease obligations, excluding current installments...................... 8,265,028 1,200,433 1,058,109 Deferred compensation................................. 3,556,274 3,546,892 3,607,571 Other noncurrent liabilities.......................... 484,408 568,562 633,302 ----------- ----------- ----------- Total liabilities..................................... 25,253,059 24,649,422 14,315,180 ----------- ----------- ----------- Deferred income....................................... 160,000 149,168 141,668 ----------- ----------- ----------- Shareholders' equity: Common stock, $1 par value; authorized 1,409,224 shares; issued and outstanding 702,673 shares.... 702,673 702,673 702,673 Paid in capital..................................... 3,422,362 3,422,362 3,422,362 Retained earnings................................... 33,469,094 45,413,376 46,041,422 ----------- ----------- ----------- Total shareholders' equity............................ 37,594,129 49,538,411 50,166,457 ----------- ----------- ----------- Total liabilities, deferred income and shareholders' equity.............................................. $63,007,188 $74,337,001 $64,623,305 =========== =========== =========== </TABLE> See accompanying notes to financial statements. F-3 <PAGE> 262 BELK-LINDSEY STORES, INC. STATEMENTS OF OPERATIONS <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED ----------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ------------ ------------ ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Revenues...................... $117,678,112 $105,285,005 $90,167,700 $60,895,636 $57,489,697 Cost of goods sold (including occupancy and buying expenses)................... 83,542,112 72,993,019 62,875,001 43,314,545 39,439,488 Selling, general and administrative expenses..... 34,751,915 30,515,830 25,398,307 19,158,809 16,703,491 Impairment charges............ -- -- 944,116 944,116 -- ------------ ------------ ----------- ----------- ----------- Income (loss) from operations.................. (615,915) 1,776,156 950,276 (2,521,834) 1,346,718 Interest expense, net......... (1,633,607) (1,388,600) (377,292) (279,801) (88,560) Gain (loss) on sale of property and equipment...... (365,659) 164,749 18,903,683 18,898,369 7,599 Other income (expense), net... (121,226) 224,536 131,728 55,509 (209,016) ------------ ------------ ----------- ----------- ----------- Income (loss) before income taxes....................... (2,736,407) 776,841 19,608,395 16,152,243 1,056,741 Income taxes.................. (1,063,978) 106,318 7,481,418 5,994,000 246,000 ------------ ------------ ----------- ----------- ----------- Net income (loss)............. $ (1,672,429) $ 670,523 $12,126,977 $10,158,243 $ 810,741 ============ ============ =========== =========== =========== Earnings (loss) per share..... $ (2.38) $ 0.95 $ 17.26 $ 14.46 $ 1.15 ============ ============ =========== =========== =========== Weighted average shares....... 702,673 702,673 702,673 702,673 702,673 ============ ============ =========== =========== =========== </TABLE> See accompanying notes to financial statements. F-4 <PAGE> 263 BELK-LINDSEY STORES, INC. STATEMENTS OF SHAREHOLDERS' EQUITY <TABLE> <CAPTION> COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL -------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Balance at February 1, 1994 (unaudited)....... $702,673 $ 3,422,362 $34,471,000 $38,596,035 Net loss (unaudited).......................... -- -- (1,672,429) (1,672,429) -------- ----------- ----------- ----------- Balance at January 31, 1995 (unaudited)....... 702,673 3,422,362 32,798,571 36,923,606 Net income (unaudited)........................ -- -- 670,523 670,523 -------- ----------- ----------- ----------- Balance at February 3, 1996................... 702,673 3,422,362 33,469,094 37,594,129 Cash dividends................................ -- -- (182,695) (182,695) Net income.................................... -- -- 12,126,977 12,126,977 -------- ----------- ----------- ----------- Balance at February 1, 1997................... 702,673 3,422,362 45,413,376 49,538,411 Cash dividends (unaudited).................... -- -- (182,695) (182,695) Net income (unaudited)........................ -- -- 810,741 810,741 -------- ----------- ----------- ----------- Balance at November 1, 1997 (unaudited)....... $702,673 $ 3,422,362 $46,041,422 $50,166,457 ======== =========== =========== =========== </TABLE> See accompanying notes to financial statements. F-5 <PAGE> 264 BELK-LINDSEY STORES, INC. STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- -------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ------------ ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Cash flows from operating activities: Net income (loss)...................... $(1,672,429) $ 670,523 $12,126,977 $ 10,158,243 $ 810,741 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Deferred income taxes.................. (552,860) (138,206) 725,262 515,367 16,561 Deferred income........................ (10,000) (9,168) (10,832) (8,332) (7,500) Depreciation and amortization.......... 2,914,430 2,618,645 1,821,773 1,392,776 1,077,926 Loss (gain) on sale of property and equipment............................ 365,659 (164,749) (18,903,683) (18,898,369) (7,599) Impairment charges..................... -- -- 944,116 944,116 -- (Increase) decrease in: Accounts receivable, net............. 2,226,132 1,481,837 301,951 1,934,959 2,595,632 Merchandise inventory................ 1,135,390 5,383,838 4,092,416 952,014 (978,197) Receivables from affiliates.......... (475,560) (4,242,339) (7,910,984) (3,682,116) 2,502,887 Prepaid income taxes................. (403,194) 564,993 54,100 -- (688,763) Other assets......................... 322,088 157,736 462,869 137,542 (152,160) Increase (decrease) in: Accounts payable and accrued expenses........................... 453,704 (1,308,113) 113,708 (1,210,396) (103,808) Payables to affiliates............... (587,613) -- 1,966,685 (2,282,324) (4,249,009) Accrued income taxes................. -- -- 978,613 1,240,322 (978,613) Deferred compensation and other liabilities........................ 283,638 430,668 74,772 105,153 125,419 ----------- ----------- ----------- ------------ ----------- Net cash provided (used) by operating activities............................. 3,999,385 5,445,665 (3,162,257) (8,701,045) (36,483) ----------- ----------- ----------- ------------ ----------- Cash flows from investing activities: Purchases of property and equipment.... (614,523) (2,591,056) (3,090,889) (2,102,039) (2,141,305) Proceeds from sale of property and equipment............................ 587,836 38,837 19,935,535 19,932,127 9,161 ----------- ----------- ----------- ------------ ----------- Net cash provided (used) by investing activities............................. (26,687) (2,552,219) 16,844,646 17,830,088 (2,132,144) ----------- ----------- ----------- ------------ ----------- Cash flows from financing activities: Net proceeds from (payments on) line of credit............................... -- -- 5,000,000 -- (5,000,000) Principal payments on long-term debt and capital lease obligations........ (3,053,541) (4,310,635) (8,737,415) (8,698,909) (128,231) Dividends paid......................... -- -- (182,695) (182,695) (182,695) ----------- ----------- ----------- ------------ ----------- Net cash used by financing activities.... (3,053,541) (4,310,635) (3,920,110) (8,881,604) (5,310,926) ----------- ----------- ----------- ------------ ----------- Net increase (decrease) in cash and cash equivalents............................ 919,157 (1,417,189) 9,762,279 247,439 (7,479,553) Cash and cash equivalents at beginning of period................................. 1,734,233 2,653,390 1,236,201 1,236,201 10,998,480 ----------- ----------- ----------- ------------ ----------- Cash and cash equivalents at end of period................................. $ 2,653,390 $ 1,236,201 $10,998,480 $ 1,483,640 $ 3,518,927 =========== =========== =========== ============ =========== Supplemental disclosures of cash flow information: Interest paid............................ $ 1,699,665 $ 1,467,826 $ 882,495 $ 888,036 $ 1,137,392 Income taxes paid........................ 115,300 54,100 5,910,100 4,266,900 1,896,815 Supplemental information regarding noncash investing and financing activities: Decrease in capital lease obligation and buildings under capital lease, net..... $ -- $ 828,969 $ -- $ -- $ -- </TABLE> See accompanying notes to financial statements. F-6 <PAGE> 265 BELK-LINDSEY STORES, INC. NOTES TO FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES COMPANY OPERATIONS Belk-Lindsey Stores, Inc. (the "Company") operates retail department stores in Florida. FISCAL YEAR Starting in fiscal year 1996, the Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1996 and 1997 ended on February 3, 1996 and February 1, 1997, and included 368 and 365 days, respectively. Fiscal year 1995 ended on Tuesday, January 31, 1995 and included 364 days. UNAUDITED FINANCIAL STATEMENTS The financial statements as of February 3, 1996 and for the years ended January 31, 1995 and February 3, 1996, and as of and for the periods ended November 2, 1996 and November 1, 1997 are unaudited. In the opinion of management, such financial statements reflect all adjustments necessary to present fairly the Company's financial position, results of operations and cash flows. The financial statements for the interim periods ended November 2, 1996 and November 1, 1997 are not necessarily indicative of the results of operations for a full fiscal year. REVENUES Revenues include sales from retail operations and leased departments, net of returns. COST OF GOODS SOLD Cost of goods sold includes occupancy and buying expenses. Occupancy expenses include rent, utilities and real estate taxes. Buying expenses include payroll and travel expenses associated with the buying function. MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market as determined by the retail inventory method. FINANCE CHARGES Selling, general and administrative expenses in the statements of operations are reduced by finance charge income arising from customer accounts receivable. Finance charge revenue amounted to approximately $2,170,000, $1,794,000 and $1,785,000 in fiscal years 1995, 1996 and 1997, respectively. PROPERTY AND EQUIPMENT, NET Property and equipment owned by the Company is stated at cost less accumulated depreciation. Property and equipment leased by the Company under capital leases is stated at an amount equal to the present value of the minimum lease payments less accumulated amortization. Depreciation and amortization are provided utilizing straight-line and various accelerated methods over the shorter of estimated asset lives or related lease terms. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement bases and the respective tax bases of the assets and liabilities and operating loss and tax credit F-7 <PAGE> 266 BELK-LINDSEY STORES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. PRE-OPENING COSTS Store pre-opening costs are expensed as incurred. CASH EQUIVALENTS Cash equivalents include liquid investments with an original maturity of 90 days or less. ADVERTISING Advertising costs are expensed as incurred and amounted to $4,525,420, $3,766,700 and $3,333,831 in fiscal years 1995, 1996 and 1997, respectively. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," during the first quarter of fiscal year 1997. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (2) ACCOUNTS RECEIVABLE, NET Customer receivables arise primarily under open-end revolving credit accounts used to finance purchases of merchandise from the Company. These accounts have various billing and payment structures, including varying minimum payment levels and finance charge rates. Installments of deferred payment accounts receivable maturing after one year are included in current assets in accordance with industry practice. The Company provides an allowance for doubtful accounts which is determined based on a number of factors, including the risk characteristics of the portfolio, historical charge-off patterns and management judgment. F-8 <PAGE> 267 BELK-LINDSEY STORES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Accounts receivable, net consists of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Customer receivables............................ $14,573,345 $14,538,865 $12,189,522 Other........................................... 598,197 301,445 240,560 Less allowance for doubtful accounts............ (648,489) (619,208) (804,612) ----------- ----------- ----------- Accounts receivable, net........................ $14,523,053 $14,221,102 $11,625,470 =========== =========== =========== </TABLE> Changes in allowance for doubtful accounts are as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Balance, beginning of period... $ 819,128 $ 744,145 $ 648,489 $ 648,489 $ 619,208 Charged to expense............. 674,640 624,495 841,608 628,143 967,354 Net uncollectible balances written off.................. (749,623) (720,151) (870,889) (628,143) (781,950) --------- --------- --------- --------- --------- Balance, end of period......... $ 744,145 $ 648,489 $ 619,208 $ 648,489 $ 804,612 ========= ========= ========= ========= ========= </TABLE> (3) INVESTMENTS Investments in equity securities of closely held companies and securities that do not have readily determinable fair values are recorded at original cost when ownership is less than 20%. Any such investments owned 20% or more but not greater than 50% are accounted for on the equity method. Investments that were previously accounted for on the cost method may become qualified for use of the equity method. The carrying amount of those investments are adjusted to reflect the investor's share of the income, losses and dividends received from the investees. Gains and losses on sales of securities are recognized when realized on a specific identification basis. (4) PROPERTY AND EQUIPMENT, NET Details of property and equipment are as follows: <TABLE> <CAPTION> ESTIMATED FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, LIVES 1996 1997 1997 --------- ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> Land................................ N/A $ 9,274 $ 9,272 $ 9,272 Buildings........................... 30-50 16,253,567 12,667,465 12,870,857 Furniture, fixtures and equipment... 5-7 15,667,193 13,640,363 13,831,888 Construction in progress............ N/A 1,335,954 102,511 1,409,038 ------------ ------------ ------------ 33,265,988 26,419,611 28,121,055 Less accumulated depreciation and amortization...................... (23,208,778) (17,069,253) (17,708,880) ------------ ------------ ------------ Property and equipment, net......... $ 10,057,210 $ 9,350,358 $ 10,412,175 ============ ============ ============ </TABLE> F-9 <PAGE> 268 BELK-LINDSEY STORES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (5) ACCRUED EXPENSES Accrued expenses are comprised of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ------------ ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Salaries, wages and employee benefits.............. $ 794,168 $ 831,875 $ 502,698 Rent............................................... 449,818 476,480 543,960 Taxes, other than income........................... 283,960 114,646 145,583 Interest........................................... 137,009 94,520 682,396 Other.............................................. 396,756 421,432 1,199,375 ---------- ---------- ---------- $2,061,711 $1,938,953 $3,074,012 ========== ========== ========== </TABLE> (6) BORROWINGS Long-term debt and capital lease obligations consist of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Unsecured term loan agreement payable in installments through 2003; interest at LIBOR (5.65% at November 1, 1997) plus 50 basis points.......................................... $ 8,583,375 $ -- $ -- Capital lease agreement through 2003.............. 1,525,448 1,371,408 1,243,177 ----------- ---------- ---------- 10,108,823 1,371,408 1,243,177 Less current installments......................... (1,843,795) (170,975) (185,068) ----------- ---------- ---------- Long-term debt and capital lease obligations, excluding current installments.................. $ 8,265,028 $1,200,433 $1,058,109 =========== ========== ========== </TABLE> The Company has a $5,000,000 unsecured line of credit agreement, with a bank at an interest rate quoted by the bank (which historically has been approximately 80 points above LIBOR.) The amounts outstanding at February 3, 1996, February 1, 1997 and November 1, 1997 were $0, $5,000,000 and $0, respectively. (7) LEASES The Company leases certain stores, warehouse facilities and equipment. The majority of these leases will expire within the next 10 years. The leases usually contain renewal options and provide for payment by the leasee of real estate taxes and other expenses, and, in certain instances, increased rentals based on percentages of sales. F-10 <PAGE> 269 BELK-LINDSEY STORES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Future minimum lease payments under noncancelable leases as of February 1, 1997 were as follows: <TABLE> <CAPTION> FISCAL YEAR CAPITAL OPERATING - ----------- ---------- ---------- <S> <C> <C> 1998........................................................ $ 304,408 $1,017,318 1999........................................................ 304,408 933,704 2000........................................................ 304,408 773,010 2001........................................................ 304,408 671,730 2002........................................................ 304,408 626,483 After 2002.................................................. 304,408 3,910,478 ---------- ---------- Total............................................. 1,826,448 $7,932,723 ========== Less imputed interest....................................... 455,040 ---------- Present value of minimum lease payments..................... 1,371,408 Less current portion........................................ 170,975 ---------- $1,200,433 ========== </TABLE> Rental expense for all operating leases consists of the following: <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Buildings: Minimum rentals.................................. $1,723,387 $1,569,947 $1,645,099 Contingent rentals............................... 347,848 247,903 340,302 Equipment.......................................... 306,015 288,495 143,462 ---------- ---------- ---------- Total rental expense..................... $2,377,250 $2,106,345 $2,128,863 ========== ========== ========== </TABLE> Contingent rentals are determined on the basis of a percentage of sales in excess of stipulated minimums for certain store facilities. (8) INCOME TAXES Federal and state income tax expense (benefit) is as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Current: Federal.................. $ (511,118) $ 244,524 $ 5,946,708 $ 3,134,182 $201,113 State.................... -- -- 809,448 2,344,451 28,326 ----------- --------- ----------- ----------- -------- (511,118) 244,524 6,756,156 5,478,633 229,439 Deferred: Federal.................. (498,853) (23,075) 467,547 1,990,818 9,887 State.................... (54,007) (115,131) 257,715 (1,475,451) 6,674 ----------- --------- ----------- ----------- -------- (552,860) (138,206) 725,262 515,367 16,561 ----------- --------- ----------- ----------- -------- Income taxes............... $(1,063,978) $ 106,318 $ 7,481,418 $ 5,994,000 $246,000 =========== ========= =========== =========== ======== </TABLE> F-11 <PAGE> 270 BELK-LINDSEY STORES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation between income taxes computed using the effective income tax rate and the federal statutory income tax rate of 34% for the fiscal years 1995 and 1996 and 35% for fiscal year 1997 is as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Income tax at the statutory federal rate........... $ (930,378) $264,126 $6,862,938 State income taxes, net of federal income tax benefit.......................................... (35,645) (18,803) 704,328 Recovery of valuation allowance.................... -- (127,682) -- Other.............................................. (97,955) (11,323) (85,848) ----------- -------- ---------- Income taxes....................................... $(1,063,978) $106,318 $7,481,418 =========== ======== ========== </TABLE> Deferred taxes based upon differences between the financial statement and tax bases of assets and liabilities and available tax carryforwards consists of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- (UNAUDITED) <S> <C> <C> Deferred tax assets: Benefit plan costs........................................ $1,338,223 $1,334,695 Capitalized leases........................................ 354,871 328,212 Allowance for doubtful accounts........................... 244,026 233,008 Inventory capitalization.................................. 138,667 113,310 Tax carryovers............................................ 700,997 -- Other..................................................... 171,407 198,987 ---------- ---------- Gross deferred tax assets................................... 2,948,191 2,208,212 ---------- ---------- Deferred tax liabilities: Prepaid pension cost...................................... 221,872 176,533 Property and equipment.................................... 299,866 29,963 Other..................................................... -- 300,525 ---------- ---------- Gross deferred tax liabilities.............................. 521,738 507,021 ---------- ---------- Net deferred tax assets..................................... $2,426,453 $1,701,191 ========== ========== </TABLE> In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the temporary differences becoming deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future income, and tax planning strategies in making this assessment. (9) BENEFIT PLANS The Company participates in the Belk Pension Plan, a defined benefit multi-employer plan, that covers substantially all of the employees of the Belk companies. Pension expense allocated to the Company was $194,982, $117,487 and $141,286 for fiscal years 1995, 1996 and 1997, respectively. Because the Belk Pension Plan is a multi-employer plan, allocation of plan assets to the Company is not practical. The Company also participates in the Belk Employee's Group Medical Plan, that provides medical benefits to substantially all employees of the Belk companies. This Plan is "self-funded" for medical benefits through a 501(c) (9) Trust. The Company participates in the Group Life Insurance Plan that provides life insurance to its employees, and is fully insured through a contract issued by an insurance company. F-12 <PAGE> 271 BELK-LINDSEY STORES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Contributions by the Company under the Belk Employees' Group Medical Plan and the Group Life Insurance Plan amounted to approximately $911,000, $954,000 and $858,000 in fiscal years 1995, 1996 and 1997, respectively. The Company participates in the Belk Profit Sharing Plan, a contributory, defined contribution multi-employer plan that provides benefits for substantially all employees of the Belk companies. The cost of the plan generally represents 10% of profits, as defined, and amounted to $0, $52,272 and $169,268 in fiscal years 1995, 1996 and 1997, respectively. The Company participates in the Supplemental Executive Retirement Plan (SERP), a non-qualified defined benefit retirement plan that provides retirement and death benefits to certain qualified executives of the Company. Total SERP costs charged to operations were $330,510, $312,059 and $223,441, in fiscal years 1995, 1996 and 1997, respectively. The effective discount rate used in determining the net periodic SERP cost was 8.5% for fiscal years 1995 and 1996, and 7.25% for fiscal year 1997. Actuarial gains and losses are amortized over the average remaining service lives of the participants. Certain eligible employees also participate in a non-qualified Deferred Compensation Plan (DCP). Participants in the plan have elected to defer a portion of their regular compensation subject to certain limitations prescribed by the DCP. The Company is required to pay interest on the employees' deferred compensation at various rates between 9% and 15%. Total interest expense related to this plan and charged to operations was $193,635, $214,443 and $217,342, in fiscal years 1995, 1996 and 1997, respectively. The Company provides postretirement benefits to certain retired employees in the form of medical and life insurance premiums. The Company recorded approximately $93,000, $129,000 and $84,000 as selling, general and administrative expense in fiscal years 1995, 1996 and 1997, respectively. (10) RELATED PARTY TRANSACTIONS The Belk Center, Inc. services the Company's customer accounts receivable. The Company paid The Belk Center, Inc. approximately $1,282,000, $1,208,000 and $1,071,000 during fiscal years 1995, 1996 and 1997, respectively, for these services. Various other selling, general, administrative and transaction processing services are provided by Belk Stores Services, Inc. ("BSS"). The Company paid BSS approximately $2,423,000, $2,304,000 and $1,598,000 during fiscal years 1995, 1996 and 1997, respectively, for these services, not including the transaction processing services. The Company paid approximately $1,575,000, $1,513,000 and $1,481,000 during fiscal years 1995, 1996 and 1997, respectively, for transaction processing fees. The Company had a demand deposit with an affiliated company at February 3, 1996 and February 1, 1997 of $0 and $6,000,000, respectively, which is included in cash and cash equivalents in the accompanying balance sheets. The Company may participate in operational, investing and financing activities with other Belk companies. (11) FAIR VALUE OF FINANCIAL INSTRUMENTS For financial instruments which are short-term in nature, such as cash and cash equivalents, accounts receivable, receivables from affiliates, accounts payable, payables to affiliates, accrued expenses and line of credit, carrying values approximate fair values. The carrying values of the Company's variable rate long-term debt and capital lease obligations are reasonable estimates of fair value. F-13 <PAGE> 272 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 36, CHAPTER 607 CORPORATIONS STATE OF FLORIDA 607.1301. DISSENTERS' RIGHTS; DEFINITIONS The following definitions apply to ss. 607.1302 and 607.1320: (1) "Corporation" means the issuer of the shares held by a dissenting shareholder before the corporate action or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Fair value," with respect to a dissenter's shares, means the value of the shares as of the close of business on the day prior to the shareholders' authorization date, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (3) "Shareholders' authorization date" means the date on which the shareholders vote authorizing the proposed action was taken, the date on which the corporation received written consents without a meeting from the requisite number of shareholders in order to authorize the action, or, in the case of a merger pursuant to s. 607.1104, the day prior to the date on which a copy of the plan of merger was mailed to each shareholder of record of the subsidiary corporation. 607.1302. RIGHT OF SHAREHOLDERS TO DISSENT (1) Any shareholder of a corporation has the right to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (a) Consummation of a Plan of merger to which the corporation is a party: 1. If the shareholder is entitled to vote on the merger, or 2. If the corporation is a subsidiary that is merged with its parent under s. 607.1104, and the shareholders would have been entitled to vote on action taken, except for the applicability of s. 607.1104; (b) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation, other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange pursuant to s. 607.1202, including a sale in dissolution but not including sale pursuant to court order or sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within 1 year after the date of sale; (c) A provided in s. 607.0902(11), the approval of a control-share acquisition; (d) Consummation of a plan of share exchange to which the corporation is a party as the corporation the shares of which will be acquired, if the shareholder is entitled to vote on the plan; (e) Any amendment of the articles of incorporation if the shareholder is entitled to vote on the amendment and if such amendment would adversely affect such shareholder by: 1. Altering or abolishing any preemptive rights attached to any of his shares; 2. Altering or abolishing the voting rights pertaining to any of his shares, except as such rights may be affected by the voting rights of new shares then being authorized of any existing or new class or series of shares; 3. Effecting an exchange, cancellation, or reclassification of any of his shares, when such exchange, cancellation, or reclassification would alter or abolish his voting rights or alter his A-1 <PAGE> 273 percentage of equity in the corporation, or effecting a reduction or cancellation of accrued dividends or other arrearages in respect to such shares; 4. Reducing the stated redemption price of any of his redeemable shares, altering or abolishing any provision relating to any sinking fund for the redemption or purchase of any of his shares, or making any of his shares subject to redemption when they are not otherwise redeemable; 5. Making noncumulative, in whole or in part, dividends of any of his preferred shares which had theretofore been cumulative; 6. Reducing the stated dividend preference of any of his referred shares; or 7. Reducing any stated preferential amount payable on any of his preferred shares upon voluntary or involuntary liquidation; or (f) Any corporate action taken, to the extent the articles of incorporation provide that a voting or nonvoting shareholder is entitled to dissent and obtain payment of his shares. (2) A shareholder dissenting from any amendment specified in paragraph (1)(e) has the right to dissent only as to those of his shares which are adversely affected by the amendment. (3) A shareholder may dissent as to less than all the shares registered in his name. In that event, his rights shall be determined as if the shares as to which he has dissented and his other shares were registered in the names of different shareholders. (4) Unless the articles of incorporation otherwise provide, this section does not apply with respect to a plan of merger or share exchange or a proposed sale or exchange of property, to the holders of shares of any class or series which, on the record date fixed to determine the shareholders entitled to vote at the meeting of shareholders at which such action is to be acted upon or to consent to any such action without a meeting, were either registered on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc., or held of records by not fewer than 2,000 shareholders. (5) A shareholder entitled to dissent and obtain payment for his shares under this section may not challenge the corporate action creating his entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. 607.1320. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS. (1)(a) If a proposed corporate action creating dissenters' rights under s. 607.1302 is submitted to a vote at a shareholders' meeting, the meeting notice shall state that shareholders are or may be entitled to assert dissenters' rights and be accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A shareholder who wishes to assert dissenters' rights shall: 1. Deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated, and 2. Not vote his shares in favor of the proposed action. A proxy or vote against the proposed action does not constitute such a notice of intent to demand payment. (b) If proposed corporate action creating dissenters' rights under s. 607.1302 is effectuated by written consent without a meting, the corporation shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each shareholder simultaneously with any request for his written consent or, if such a request is not made, within 10 days after the date the corporation received written consents without a meeting from the requisite number of shareholders necessary to authorize the action. (2) Within 10 days after the shareholder's authorization date, the corporation shall give written notice of such authorization or consent or adoption of the plan of merger, as the case may be, to each shareholder who filed a notice of intent to demand payment for his shares pursuant to paragraph (1)(a) or, in the case of action A-2 <PAGE> 274 authorized by written consent, to each shareholder excepting any who voted for, or consented in writing to, the proposed action. (3) Within 20 days after the giving of notice to him, any shareholder who elects to dissent shall file with the corporation a notice of such election, stating his name and address, the number, classes, and series of shares as to which he dissents, and a demand for payment of the fair value of his shares. Any shareholder failing to file such election to dissent within the period set forth shall be bound by the terms of the proposed corporate action. Any shareholder filing an election to dissent shall deposit his certificates for certificated shares with the corporation simultaneously with the filing of the election to dissent. The corporation may restrict the transfer of uncertificated shares from the date of shareholder's election to dissent is filed with the corporation. (4) Upon filing a notice of election to dissent, the shareholder shall thereafter be entitled only to payment as provided in this section and shall not be entitled to vote or to exercise any other rights of a shareholder. A notice of election may be withdrawn in writing by the shareholder at any time before an offer is made by the corporation, as provided in subsection (5), to pay for his shares. After such offer, no such notice of election may be withdrawn unless the corporation consents thereto. However, the right of such shareholder to be paid the fair value of his shares shall cease, and he shall be reinstated to have all his rights as a shareholder as of the filing of his notice of election, including any intervening preemptive rights and the right to payment of any intervening divided or other distribution of, or any such rights have expired or any such dividend or distribution other than in cash has been completed, in lieu thereof, at the election of the corporation, the fair value thereof in cash as determined by the board as of the time of such expiration or completion, but without prejudice otherwise to any corporate proceedings that may have been taken in the interim, if: (a) Such demand is withdrawn as provided in this section; (b) The proposed corporate action is abandoned or rescinded or shareholders revoke the authority to effect such action. (c) No demand or petition of the determination of fair value by a court has been made or filed within the time provided in this section; or (d) A court of competent jurisdiction determines that such shareholder is not entitled to the relief provided by this section. (5) Within 10 days after the expiration of the period in which shareholders may file their notices of election to dissent, or within 10 days after such corporate action is effected, whichever is later (but in no case later than 90 days from the shareholders' authorization date), the corporation shall make a written offer to each dissenting shareholder who has made demand as provided in this section to pay an amount the corporation estimates to be the fair value of such shares. If the corporate action has not been consummated before the expiration of the 90-day period after the shareholders' authorization date, the offer may be made conditional upon the consummation of such action. Such notice and offer shall be accompanied by: (a) A balance sheet of the corporation, the shares of which the dissenting shareholder holds, as of the latest available date and not more than 12 months prior to the making of such offer; and (b) A profit and loss statement of such corporation of the 12-month period ended on the date of such balance sheet or, if the corporation was not in existence throughout such 12- month period, for the portion thereof during which it was in existence. (6) If within 30 days after the making of such offer any shareholder accepts the same payment for his shares shall be made within 90 days after the making of such offer or the consummation of the proposed action, whichever is later. Upon payment of the agreed value, the dissenting shareholder shall cease to have any interest in such shares. (7) If the corporation fails to make such offer within the period specified therefor in subsection (5) or if it makes the offer and any dissenting shareholder or shareholders fail to accept the same within the period of A-3 <PAGE> 275 30 days thereafter, then the corporation, within 30 days after receipt of written demand from any dissenting shareholder given within 60 days after the date on which such period of 60 days may, file an action in any court of competent jurisdiction in the county in this state where the registered office of the corporation is located requesting that the fair value of such shares be determined. The court shall also determine whether each dissenting shareholder, as to whom the corporation requests the court to make such determination, is entitled to receive payment for his shares. If the corporation fails to institute the proceeding as herein provided, any dissenting shareholder may do so in the name of the corporation. All dissenting shareholders (whether or not residents of this state), other than shareholders who have agreed with the corporation as to the value of their shares, shall be made parties to the proceeding as an action against their shares. The corporation shall serve a copy of the initial pleading in such proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint and upon each nonresident dissenting shareholder either by registered or certified mail and publication or in such other manner as is permitted by law. The jurisdiction of the court in plenary and exclusive. All shareholders who are proper parties to the proceeding are entitled to judgment against the corporation for the amount of the fair value of their shares. The court may, if it so elects, appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. The appraisers shall have such power and authority as is specified in the order of their appointment or an amendment thereof. The corporation shall pay each dissenting shareholder the amount found to be due him within 10 days after final determination of the proceedings. Upon payment of the judgment, the dissenting shareholder shall cease to have any interest in such shares. (8) The judgment may, at the discretion of the court, include a fair rate of interest, to be determined by the court. (9) The costs and expenses of any such proceedings shall be determined by the court and shall be assessed against the corporation, but all or any part of such costs and expenses may be apportioned and assessed as the court deems equitable against any or all of the dissenting shareholders who are parties to the proceeding, to whom the corporation has made an offer to pay for the shares, if the court finds that the action of such shareholders in failing to accept such offer was arbitrary, vexatious, or not in good faith. Such expenses shall include reasonable compensation for, and reasonable expenses of, the appraisers, but shall exclude the fees and expenses of counsel for, and experts employed by, any party. If the fair value of the shares, as determined, materially exceeds the amount which the corporation offered to pay therefor or if no offer was made, the court in its discretion may award to any shareholder who is a party to the proceeding such sum as the court determines to be reasonable compensation to any attorney or expert employed by the shareholder in the proceeding. (10) Shares acquired by a corporation pursuant to payment of the agreed value thereof or pursuant to payment of the judgment entered therefor, as provided in this section, may be held and disposed of by such corporation as authorized but unissued shares of the corporation, except that, in the case of a merger, they may be held and disposed of as the plan of merger otherwise provides. The shares of the surviving corporation into which the shares of such dissenting shareholders would have been converted had they assented to the merger shall have the status of authorized but unissued shares of the surviving corporation. A-4 <PAGE> 276 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ------------ ----------- ------------ ------------ ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement....... $ 90,167,700 $12,126,977 $ 19,985,687 $ 21,807,460 $49,538,411 Adjustments to eliminate less than wholly-owned subsidiaries....... -- -- -- -- -- Less: leased sales................ (575,968) -- -- -- -- ------------ ----------- ------------ ------------ ----------- Adjusted Shareholders' Statement....................... $ 89,591,732 12,126,977 19,985,687 21,807,460 49,538,411 ============ ----------- ------------ ------------ ----------- Adjustments for non-operating items: Gain/loss on disposal of PP&E... (11,691,142) (18,903,683) (18,903,683) Gain/loss on sale of securities.................... -- -- -- Impairment loss................. 583,897 944,116 944,116 Equity in earnings of unconsolidated subsidiaries... -- -- -- Gain/loss on discontinued operations.................... -- -- -- Adjustment to tax expense....... -- -- -- ----------- ------------ ------------ Total non-operating items......... (11,107,245) (17,959,567) (17,959,567) ----------- ------------ ------------ Other Adjustments: Adjustment for dividends received from other Belk entities...................... (61,609) (99,617) (99,617) -- Adjustment for ownership in other Belk entities........... -- -- -- (627,728) ----------- ------------ ------------ ----------- Per Model......................... $ 958,123 $ 1,926,503 $ 3,748,276 $48,910,683 =========== ============ ============ =========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents....... $(10,998,522) Negative cash balances reclassified to accounts payable.................... 43 Receivables from affiliates, net........................ (8,796,716) Loans receivable from affiliates, net............ (243,214) Liabilities Notes payable................. 5,000,000 Current installments of long-term debt............. -- Current portion of obligations under capital leases....... 170,975 Payables to affiliates, net... -- Long-term debt, excluding current installments....... -- Obligations under capital leases, excluding current portion.................... 1,200,433 Loans payable to affiliates, net........................ -- ------------ Net debt (cash)................... (13,667,001) Adjustments to eliminate less than wholly-owned subsidiaries....... -- ------------ Per Model......................... $(13,667,001) ============ </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 277 SUPPLEMENT NO. 3 <PAGE> 278 BELK-LINDSEY STORES, INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 3 <PAGE> 279 BELK'S DEPARTMENT STORE OF ALBANY, GEORGIA , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk's Department Store of Albany, Georgia (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 22.9358 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 160,688 shares of New Belk Class A Common Stock which will represent approximately 0.2678% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 280 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 281 BELK'S DEPARTMENT STORE OF ALBANY, GEORGIA ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK'S DEPARTMENT STORE OF ALBANY, GEORGIA: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk's Department Store of Albany, Georgia (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 22.9358 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 282 BELK'S DEPARTMENT STORE OF ALBANY, GEORGIA SUPPLEMENT NO. 4 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 4 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK'S DEPARTMENT STORE OF ALBANY, GEORGIA (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 283 THE COMPANY The Company was incorporated as a Georgia corporation in 1938. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 22.9358 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 284 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 14,400 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A 3 <PAGE> 285 Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to 4 <PAGE> 286 be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. 5 <PAGE> 287 Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. 6 <PAGE> 288 If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or 7 <PAGE> 289 shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with 8 <PAGE> 290 regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not 9 <PAGE> 291 indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct 10 <PAGE> 292 or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other 11 <PAGE> 293 books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. 12 <PAGE> 294 Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. 13 <PAGE> 295 DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales.................. $10,009,566 $10,009,566 0.6 $1,543,206 $4,462,534 EBITDA..................... 646,880 578,919 7 1,543,206 2,509,227 EBIT....................... 336,763 268,802 10 1,543,206 1,144,814 Net Income................. 146,792 99,667 15 -- 1,495,005 Book Equity................ 6,063,368 5,443,676 1 -- 5,443,676 </TABLE> 14 <PAGE> 296 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk of Americas, Ga., Inc. 34.5790% X $ 2,375,853 = $ 821,546 Belk of Dawson, Ga., Inc. 5.1414% X 862,681 = 44,354 Belk of Waycross, Ga., Inc. .1179% X 43,824,848 = 51,670 ----------- Total $ 917,570 =========== Relative Operating Value of Company $ 5,443,676 Relative Operating Value of Other Companies Owned by Company + 917,570 ----------- Total Relative Value of Company = $ 6,361,246 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. 1.8611% X $ 6,361,246 = $ 118,389 Hudson-Belk Company, Raleigh, NC. .1667% X 6,361,246 = 10,604 Belk of Thomaston, Ga., Inc. 1.6667% X 6,361,246 = 106,023 Belk of Toccoa, Ga., Inc. 10.3056 X 6,361,246 = 655,565 Belk of Waycross, Ga., Inc. 37.3472 X 6,361,246 = 2,375,747 ----------- Total $ 3,266,328 =========== Total Relative Value of Company $ 6,361,246 Total Relative Value of Company Owned by Other Belk Companies -- 3,266,328 ----------- Net Relative Value of Company = $ 3,094,918 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 3,094,918 / $1,155,623,145 = .2678% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.2678% X 60,000,007) / 7,006 = 22.9358 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. 15 <PAGE> 297 The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 298 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 10.19 Book value per share(2)................................... 421.07 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 21.77 Book value per share...................................... 290.41 </TABLE> - --------------- (1) Based on 14,400 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 14,400 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 299 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $11,005 $ 9,908 $10,010 Net income (loss)........................................... 263 (18) 147 Per common share Net income (loss)(1)...................................... 18.29 (1.26) 10.19 Dividends................................................. 2.00 3.00 1.00 Book value(2)............................................. 397.46 402.49 421.07 Total assets................................................ 8,825 8,636 8,783 Shareholders' equity........................................ 5,723 5,796 6,063 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $6,790 $6,983 Income (loss) from operations............................... (7) 167 </TABLE> - --------------- (1) Based on 14,400 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 14,400 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 300 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Comparable store sales decreased in fiscal year 1996 as a result of a change in merchandise mix, markdown policies and increased inventories as part of a plan to revise the store's overall merchandising strategy. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Albany Mall in Albany, Georgia. The Company's retail store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Bergren group office in Gainesville, Florida. The Company formerly operated a clearance center in downtown Albany, Georgia. The clearance center was sold in December 1997 for $575,000. The Company also owns approximately $720,000 in marketable securities. Facilities. The Company owns the store property and building, which contains approximately 84,000 square feet of floor area, together with an adjacent parking area. The Company also owned the downtown building formerly operated as a clearance center. The Company believes the Albany Mall building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Gayfer's, J.C. Penney and Mansour's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 301 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)..... 9,660 67.1% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(c).................................................... 8,480 58.9% H. W. McKay Belk (Director and Executive Officer) (b)(c).... 8,492 59.0% John R. Belk (Director and Executive Officer) (b)(c)........ 8,492 59.0% Henderson Belk (Director)................................... 0 * Sarah Belk Gambrell (Director).............................. 1,318 9.2% Karl G. Hudson, Jr. (Director).............................. 0 * Katherine McKay Belk (b).................................... 1,204 8.4% Katherine Belk Morris (b)................................... 1,092 7.6% Leroy Robinson (b).......................................... 904 6.3% Byron L. Bergren (Executive Officer)........................ 0 * James Madden (Executive Officer)............................ 0 * Belk of Toccoa, Ga., Inc.................................... 1,484 10.3% Belk of Waycross, Ga., Inc.................................. 5,378 37.3% Thomas M. Belk, Trustee U/A dated September 15, 1993........ 904 6.2% All Directors and Executive Officers as a group (8 persons).................................................. 11,376 79.0% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk, and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Karl G. Hudson, Jr. -- 2416 White Oak Road, Raleigh, N.C. 27609; Byron L. Bergren and James Madden -- 1312 N. Main Street, Gainesville, Florida 32601. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 900 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 904 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 268 shares held by Belk Enterprises, Inc., 24 shares held by Hudson-Belk Company, 240 shares held by Belk of Thomaston, Ga., Inc., 1,484 shares held by Belk of Toccoa, Ga., Inc., and 5,378 shares held by Belk of Waycross, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. 20 <PAGE> 302 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 303 BELK'S DEPARTMENT STORE OF ALBANY, GEORGIA UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 40,170 $ 10,901 Accounts receivable, net.................................. 1,700,624 1,931,112 Merchandise inventory..................................... 2,208,643 2,190,867 Refundable income taxes................................... 29,445 -- Deferred income taxes..................................... 57,257 33,205 Other..................................................... 105,512 95,966 ---------- ---------- Total current assets........................................ 4,141,651 4,262,051 Loans receivable from affiliates, net....................... 7,230 7,230 Investments................................................. 1,055,441 1,339,692 Property, plant and equipment, net.......................... 3,371,965 3,121,759 Other noncurrent assets..................................... 60,151 52,712 ---------- ---------- $8,636,438 $8,783,444 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt.................... $ 375,000 $ 375,000 Accounts payable and accrued expenses..................... 450,227 479,214 Payables to affiliates, net............................... 536,728 630,070 Accrued income taxes...................................... -- 106,476 ---------- ---------- Total current liabilities................................... 1,361,955 1,590,760 Deferred income taxes....................................... 341,920 339,354 Long-term debt, excluding current installments.............. 931,250 556,250 Other noncurrent liabilities................................ 205,460 233,712 ---------- ---------- Total liabilities........................................... 2,840,585 2,720,076 Shareholders' equity: Common stock.............................................. 1,440,000 1,440,000 Net unrealized gain (loss) on investments, net of income taxes.................................................. 330,828 465,951 Retained earnings......................................... 4,025,025 4,157,417 ---------- ---------- Total shareholders' equity.................................. 5,795,853 6,063,368 ---------- ---------- $8,636,438 $8,783,444 ========== ========== </TABLE> F-2 <PAGE> 304 BELK'S DEPARTMENT STORE OF ALBANY, GEORGIA UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales..................................... $11,365,760 $10,249,370 $10,355,774 Less: Leased Sales.................................... 360,408 341,365 346,207 ----------- ----------- ----------- Net sales............................................. 11,005,352 9,908,005 10,009,567 Operating costs and expenses.......................... 10,458,062 9,840,701 9,753,356 ----------- ----------- ----------- Income from operations................................ 547,290 67,304 256,211 ----------- ----------- ----------- Other income (expense): Interest, net....................................... (145,336) (155,308) (125,068) Dividend income..................................... 9,504 10,656 11,880 Gain (loss) on disposal of property, plant and equipment........................................ (6,459) 1,574 1,722 Miscellaneous, net.................................. (14,457) (19,874) 712 ----------- ----------- ----------- Total other expense, net.............................. (156,748) (162,952) (110,754) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities............................................ 390,542 (95,648) 145,457 Income tax expense (benefit).......................... 127,096 (46,780) 44,596 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................. 263,446 (48,868) 100,861 Equity in earnings (loss) of unconsolidated entity, net of tax.......................................... -- 30,761 45,931 ----------- ----------- ----------- Net earnings.......................................... 263,446 (18,107) 146,792 Retained earnings at beginning of period.............. 3,820,774 4,055,420 4,025,025 Dividends paid........................................ (28,800) (43,200) (14,400) Retained earnings adjustments......................... -- 30,912 -- ----------- ----------- ----------- Retained earnings at end of period.................... $ 4,055,420 $ 4,025,025 $ 4,157,417 =========== =========== =========== </TABLE> F-3 <PAGE> 305 BELK'S DEPARTMENT STORE OF ALBANY, GEORGIA CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1997, 1996, and 1995 ended on February 1, 1997, February 3, 1996, and January 31, 1995 respectively. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. F-4 <PAGE> 306 BELK'S DEPARTMENT STORE OF ALBANY, GEORGIA CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. (BSS) in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1995 and 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements F-5 <PAGE> 307 BELK'S DEPARTMENT STORE OF ALBANY, GEORGIA CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. (12) RETAINED EARNINGS ADJUSTMENT Adjustment to Retained Earnings of the Company at February 3, 1996, is due to placing the Company's investment in Belk-Hagins Company of Americus, Ga., Inc. on the equity method of accounting. F-6 <PAGE> 308 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 309 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 310 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 311 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 312 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 313 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 314 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $10,009,566 $146,792 $336,763 $646,880 $6,063,368 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $10,009,566 146,792 336,763 646,880 6,063,368 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... (1,194) (1,722) (1,722) Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. (45,931) (66,239) (66,239) Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... (47,125) (67,961) (67,961) -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. -- -- -- Adjustment for ownership in other Belk entities.................................. (619,692) -------- -------- -------- ---------- Per Model..................................... $ 99,667 $268,802 $578,919 $5,443,676 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (10,900) Negative cash balances reclassified to accounts payable........................ 16 Receivables from affiliates, net.......... 0 Loans receivable from affiliates, net..... (7,230) Liabilities Notes payable............................. -- Current installments of long-term debt.... 375,000 Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... 630,070 Long-term debt, excluding current installments............................ 556,250 Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... 1,543,206 Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $ 1,543,206 =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 315 SUPPLEMENT NO. 4 <PAGE> 316 BELK'S DEPARTMENT STORE OF ALBANY, GEORGIA THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 4 <PAGE> 317 BELK OF AMERICUS, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Americus, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 13.2469 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 26,282 shares of New Belk Class A Common Stock which will represent approximately 0.0438% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. <PAGE> 318 I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 319 BELK OF AMERICUS, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF AMERICUS, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Americus, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 13.2469 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 320 BELK OF AMERICUS, GA., INC. SUPPLEMENT NO. 5 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 5 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF AMERICUS, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 321 THE COMPANY The Company was incorporated as a Georgia corporation in 1949 as Belk-Hagins Company of Americus, Ga., Inc. The Company changed its name to Belk of Americus, Ga., Inc. on June 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 13.2469 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 322 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 20,224 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer 3 <PAGE> 323 restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 324 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class, or 5 <PAGE> 325 alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board shall have concurrent power, by vote of a majority of all of the directors, to make, alter, amend and rescind the Company Bylaws. The bylaws enacted by the Shareholders may be affected by action of the Company Board and vice versa; provided, however, the Company Board may not re-enact a bylaw which the Shareholders have repealed or altered, nor may it repeal a bylaw enacted by the Shareholders which limits the powers of the Company Board or enhances or protects the right of Shareholders, without the consent of the Shareholders. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. 6 <PAGE> 326 Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be 7 <PAGE> 327 changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 328 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in 9 <PAGE> 329 connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the 10 <PAGE> 330 interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk 11 <PAGE> 331 Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state 12 <PAGE> 332 where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the 13 <PAGE> 333 court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 334 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales..................... $3,851,382 $3,851,382 0.6 $(65,024) $2,375,853 EBITDA........................ 278,900 281,006 7 (65,024) 2,032,066 EBIT.......................... 201,366 203,472 10 (65,024) 2,099,744 Net Income.................... 132,830 118,785 15 -- 1,781,775 Book Equity................... 1,660,457 1,660,193 1 -- 1,660,193 </TABLE> 15 <PAGE> 335 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ---------- Total $ N/A ========== Relative Operating Value of Company $2,375,853 Relative Operating Value of Other Companies Owned by Company + -- ---------- Total Relative Value of Company = $2,375,853 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk's Department Store of Albany, Georgia 34.579% X $ 2,375,853 = $ 821,546 Belk of Dawson, Ga., Inc., 34.3643 X 2,375,853 = 816,445 Belk of Toccoa, Ga., Inc. 9.4072 X 2,375,853 = 223,501 Belk of Dalton, Ga., Inc. .3436 X 2,375,853 = 8,163 ---------- Total $1,869,655 ========== Total Relative Value of Company $2,375,853 Total Relative Value of Company Owned by Other Belk Companies - 1,869,655 ---------- Net Relative Value of Company = $ 506,198 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $506,198 / $1,155,623,145 = .0438% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON APPLICABLE EXCHANGE SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) RATIO <C> <C> <C> <C> <C> <C> <C> (.0438% X 60,000,007) / 1,984 = 13.2469 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 336 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 14.26 Book value per share(2)................................... 178.31 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 12.57 Book value per share...................................... 167.73 </TABLE> - --------------- (1) Based on 9,312 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 9,312 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 337 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 3,820 $ 3,801 $ 3,851 Net income.................................................. 177 89 133 Per common share Net income (loss)(1)...................................... 22.96 9.55 14.26 Dividends................................................. -- -- -- Book value(2)............................................. 154.50 164.05 178.31 Total assets................................................ 1,954 1,864 2,024 Shareholders' equity........................................ 1,439 1,528 1,660 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $2,718 $2,584 Income from operations...................................... 119 94 </TABLE> - --------------- (1) Based on 9,312 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 9,312 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 338 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates one retail department store in Perlis Plaza in Americus, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Matthews group office in Macon, Georgia. Facilities. The Company leases its store building, which contains approximately 43,000 square feet of floor area. The current term of the lease expires in 2003. The Company believes its store building is adequate to meet its current needs. Competition. The Company's principal competitor in the market is Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 339 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)..... 8,304 89.2% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(b)(c)................................................. 7,936 85.2% H. W. McKay Belk (Director and Executive Officer) (a)(b)(c)................................................. 7,936 85.2% John R. Belk (Director and Executive Officer) (a)(b)(c)..... 7,936 85.2% Henderson Belk (Director) (b)............................... 160 1.7% Sarah Belk Gambrell (Director) (b).......................... 464 5.0% Leroy Robinson (Director) (a)............................... 608 6.5% Katherine McKay Belk (a).................................... 608 6.5% Katherine Belk Morris (a)................................... 608 6.5% William M. Matthews, V (Executive Officer).................. 0 * Belk of Dawson, Ga., Inc.................................... 3,200 34.4% Belk's Department Store of Albany, Ga., Inc................. 3,220 34.6% Thomas M. Belk, Trustee U/A dated September 15, 1993........ 608 6.5% All Directors and Executive Officers as a group (8 persons).................................................. 8,576 92.1% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk, and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; William M. Matthews, V -- 3661 Eisenhower Parkway, Macon, Ga. 31206; Belk of Dawson, Ga., Inc., Belk's Department Store of Albany, Ga., Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 608 shares held by Thomas M. Belk, Trustee, U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 160 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Includes 3,220 shares held by Belk's Department Store of Albany, Georgia, 32 shares held by Belk of Dalton, Ga., Inc., 3,200 shares held by Belk of Dawson, Ga., Inc., 876 shares held by Belk of Toccoa, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. 20 <PAGE> 340 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 341 BELK OF AMERICUS, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 50,261 $ 150,499 Accounts receivable, net.................................. 515,017 568,810 Merchandise inventory..................................... 728,021 808,354 Deferred income taxes..................................... -- 20,854 Other..................................................... 45,901 41,780 ---------- ---------- Total current assets........................................ 1,339,200 1,590,297 Investments................................................. 264 264 Property, plant and equipment, net.......................... 292,604 221,687 Deferred income taxes....................................... 219,669 201,887 Other noncurrent assets..................................... 11,900 9,829 ---------- ---------- $1,863,637 $2,023,964 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 157,292 $ 211,800 Payables to affiliates, net............................... 110,442 85,475 Deferred income taxes..................................... 9,043 -- Accrued income taxes...................................... 30,742 34,398 ---------- ---------- Total current liabilities................................... 307,519 331,673 Other noncurrent liabilities................................ 28,491 31,834 ---------- ---------- Total liabilities........................................... 336,010 363,507 Shareholders' equity: Common stock.............................................. 931,200 931,200 Additional paid in capital................................ 115,808 115,808 Retained earnings......................................... 480,619 613,449 ---------- ---------- Total shareholders' equity.................................. 1,527,627 1,660,457 ---------- ---------- $1,863,637 $2,023,964 ========== ========== </TABLE> F-2 <PAGE> 342 BELK OF AMERICUS, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $3,819,822 $3,800,658 $3,851,382 Operating costs and expenses............................... 3,659,579 3,649,783 3,652,478 ---------- ---------- ---------- Income from operations..................................... 160,243 150,875 198,904 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (45,560) (32,406) (26,121) Gain (loss) on disposal of property, plant and equipment............................................. -- -- (2,106) Miscellaneous, net....................................... (236) 3,266 4,569 ---------- ---------- ---------- Total other expense, net................................... (45,796) (29,140) (23,658) ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 114,447 121,735 175,246 Income tax expense (benefit)............................... (62,627) 32,776 42,416 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 177,074 88,959 132,830 ---------- ---------- ---------- Net earnings............................................... 177,074 88,959 132,830 Retained earnings at beginning of period................... 214,586 391,660 480,619 ---------- ---------- ---------- Retained earnings at end of period......................... $ 391,660 $ 480,619 $ 613,449 ========== ========== ========== </TABLE> F-3 <PAGE> 343 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 344 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 345 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 346 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 347 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 348 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 349 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 350 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 351 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $3,851,382 $132,830 $201,366 $278,900 $1,660,457 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- -------- ---------- Adjusted Shareholders' Statement............... $3,851,382 132,830 201,366 278,900 1,660,457 ========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ 1,411 2,106 2,106 Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... (15,456) -- -- -- -------- -------- -------- Total non-operating items...................... (14,045) 2,106 2,106 -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (264) -------- -------- -------- ---------- Per Model...................................... $118,785 $203,472 $281,006 $1,660,193 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (150,499) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... -- Loans receivable from affiliates, net...... -- Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ 85,475 Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ (65,024) Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ (65,024) ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 352 SUPPLEMENT NO. 5 <PAGE> 353 BELK OF AMERICUS, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: ,1998 --------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 5 <PAGE> 354 BELK OF ATHENS, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Athens, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 57.4874 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 293,013 shares of New Belk Class A Common Stock which will represent approximately 0.4884% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 355 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 356 BELK OF ATHENS, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF ATHENS, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Athens, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 57.4874 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 357 BELK OF ATHENS, GA., INC. SUPPLEMENT NO. 6 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 6 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF ATHENS, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 358 THE COMPANY The Company was incorporated as a Georgia corporation in 1930 as Gallant-Belk Company, Athens, Georgia. The Company changed its name to Belk of Athens, Ga., Inc. on June 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 57.4874 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 359 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 12,952 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer 3 <PAGE> 360 restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 361 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company at any time requires a vote of two-thirds of its shares outstanding at the time. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate 5 <PAGE> 362 number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles specify that an amendment of the Company Articles in either substance or form requires a vote of the majority of its shares outstanding at the time. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were 6 <PAGE> 363 present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. 7 <PAGE> 364 Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares 8 <PAGE> 365 entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving 9 <PAGE> 366 action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the 10 <PAGE> 367 effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any 11 <PAGE> 368 security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment 12 <PAGE> 369 (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. 13 <PAGE> 370 If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales........................... $15,328,996 $15,328,996 0.6 $(18,702) $9,216,100 EBITDA.............................. 1,193,872 1,190,519 7 (18,702) 8,352,335 EBIT................................ 726,392 723,039 10 (18,702) 7,249,092 Net Income.......................... 442,157 440,030 15 -- 6,600,450 Book Equity......................... 8,821,331 5,995,445 1 -- 5,995,445 </TABLE> 14 <PAGE> 371 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk of Canton, Ga., Inc. 1.3458% X $ 2,207,655 = $ 29,711 Belk of Dalton, Ga., Inc. .6292% X 8,605,017 = 54,143 Belk of LaGrange, Ga., Inc. 6.3399% X 25,267,525 = 1,601,936 Belk of Lawrenceville, Ga., Inc. .5766% X 6,024,824 = 34,739 Belk of Monroe, Ga., Inc. .1326% X 1,961,637 = 2,601 Belk of Thomaston, Ga., Inc. 11.0555% X 30,307,653 = 3,350,662 ----------- Total $ 5,073,792 =========== Relative Operating Value of Company $ 9,216,100 Relative Operating Value of Other Companies Owned by Company + 5,073,792 ----------- Total Relative Value of Company = $14,289,892 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Gallant-Belk Company of Anderson, SC 48.0552% X $14,289,892 = $ 6,867,036 Belk Enterprise, Inc. .9918% X 14,289,892 = 141,727 Belk of Dalton, Ga., Inc. .2944% X 14,289,892 = 42,069 Belk of LaGrange, Ga., Inc. 9.1895 X 14,289,892 = 1,313,170 Belk of Thomaston, Ga., Inc. .2402% X 14,289,892 = 34,324 Belk of Toccoa, Ga., Inc. 1.7356 X 14,289,892 = 248,015 ----------- Total $ 8,646,341 =========== Total Relative Value of Company $14,289,892 Total Relative Value of Company Owned by Other Belk Companies - 8,646,341 ----------- Net Relative Value of Company = $ 5,643,551 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 5,643,551 / $1,155,623,145 = .4884% </TABLE> 15 <PAGE> 372 The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.4884% X 60,000,007) / 5,097 = 57.4874 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 373 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 34.26 Book value per share(2)................................... 683.57 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 54.57 Book value per share...................................... 727.90 </TABLE> - --------------- (1) Based on 12,906 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 12,906 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 374 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $14,886 $14,393 $15,329 Net income.................................................. 517 476 442 Per common share Net income (loss)(1)...................................... 40.04 36.86 34.26 Dividends................................................. 10.00 12.50 12.50 Book value(2)............................................. 637.39 661.75 683.51 Total assets................................................ 9.803 9.982 10,892 Shareholders' equity........................................ 8,226 8,540 8,821 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $10,304 $10,689 Income from operations...................................... 310 446 </TABLE> - --------------- (1) Based on 12,906 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 12,906 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 375 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Other expense, net increased in fiscal year 1997 as a result of increased interest expense incurred on additional borrowings used to fund the purchase of stock in other Belk companies. BUSINESS OF THE COMPANY General. The Company operates one retail department store in Georgia Square Mall in Athens, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Kerr group office in Norcross, Georgia. Facilities. The Company leases its store building, which contains approximately 119,000 square feet of floor area. The current term of the lease expires in 2007. The Company believes its store building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Macy's, Penney and Sears. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 376 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)........................................ 9,665 74.9% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(c)(f)(g).............................................. 8,421 65.2% H. W. McKay Belk (Director and Executive Officer) (b)(c)(f)(h).............................................. 8,442 65.4% John R. Belk (Director and Executive Officer) (b)(c)(f)(i).............................................. 8,449 65.5% Henderson Belk (Director) (d)(e)............................ 424 * Sarah Belk Gambrell (d)(e).................................. 1,328 10.3% Leroy Robinson (Director) (b)(c)............................ 480 3.7% Robert K. Kerr, Jr. (Director and Executive Officer)........ 8 * Sarah Gambrell Knight....................................... 872 6.8% Gallant-Belk Company........................................ 6,202 48.1% Belk of LaGrange, Ga., Inc. ................................ 1,186 9.2% All Directors and Executive Officers as a group (10 persons).................................................. 9,697 75.1% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207, Sarah Gambrell Knight -- 810 Colville Road, Charlotte, N.C. 28207; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071; Gallant-Belk and Belk of LaGrange, Ga., Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Represented by 28 shares held by Claudia W. Belk, Tr. U/A f/b/o Mary Claudia Belk. Claudia W. Belk is John M. Belk's wife. (b) Includes 176 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Includes 304 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (d) Includes 400 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 20 <PAGE> 377 (e) Includes 24 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (f) Includes 128 shares held by Belk Enterprises, Inc., 6,202 shares held by Gallant-Belk Company, 38 shares held by Belk of Dalton, Ga., Inc., 1,186 shares held by Belk of LaGrange, Ga., Inc., 31 shares held by Belk of Thomaston, Ga., Inc., and 224 shares held by Belk of Toccoa, Ga., Inc. which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (g) Includes 20 shares held by Thomas M. Belk, Jr. as custodian for his minor children. (h) Includes 5 shares held by H. W. McKay Belk as custodian for his minor children. (i) Includes 15 shares held by John R. Belk as custodian for his minor children. 21 <PAGE> 378 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 379 BELK OF ATHENS, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 166,904 $ 200,587 Accounts receivable, net.................................. 2,094,224 2,561,228 Merchandise inventory..................................... 2,891,753 3,134,922 Receivable from affiliates, net........................... 870,067 618,114 Refundable income taxes................................... 15,799 10,695 Deferred income taxes..................................... 33,566 -- Other..................................................... 147,514 113,770 ---------- ----------- Total current assets........................................ 6,219,827 6,639,316 Loans receivable from affiliates, net....................... 1,800,000 -- Investments................................................. 192,424 2,825,886 Property, plant and equipment, net.......................... 1,650,459 1,271,881 Deferred income taxes....................................... -- 35,872 Other noncurrent assets..................................... 119,517 118,583 ---------- ----------- $9,982,227 $10,891,538 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 942,280 $ 809,871 Deferred income taxes..................................... -- 1,699 Accrued income taxes...................................... 77,126 40,329 ---------- ----------- Total current liabilities................................... 1,019,406 851,899 Deferred income taxes....................................... 26,579 -- Loans payable to affiliates, net............................ -- 800,000 Other noncurrent liabilities................................ 395,743 418,308 ---------- ----------- Total liabilities........................................... 1,441,728 2,070,207 Shareholders' equity: Common stock.............................................. 1,290,600 1,290,600 Additional paid in capital................................ 4,302 4,302 Retained earnings......................................... 7,245,597 7,526,429 ---------- ----------- Total shareholders' equity.................................. 8,540,499 8,821,331 ---------- ----------- $9,982,227 $10,891,538 ========== =========== </TABLE> F-2 <PAGE> 380 BELK OF ATHENS, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $15,078,600 $14,620,971 $15,541,900 Less: Leased Sales...................................... 192,112 227,905 212,904 ----------- ----------- ----------- Net sales............................................... 14,886,488 14,393,066 15,328,996 Operating costs and expenses............................ 14,029,429 13,742,731 14,601,494 ----------- ----------- ----------- Income from operations.................................. 857,059 650,335 727,502 ----------- ----------- ----------- Other income (expense): Interest, net......................................... 53,578 111,655 (29,350) Dividend income....................................... 1,584 2,089 3,146 Gain (loss) on disposal of property, plant and equipment.......................................... (402) (630) 207 Miscellaneous, net.................................... (35,981) (1,855) (4,463) ----------- ----------- ----------- Total other expense, net................................ 18,779 111,259 (30,460) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 875,838 761,594 697,042 Income tax expense (benefit)............................ 359,103 285,904 254,885 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 516,735 475,690 442,157 ----------- ----------- ----------- Net earnings............................................ 516,735 475,690 442,157 Retained earnings at beginning of period................ 6,543,557 6,931,232 7,245,597 Dividends paid.......................................... (129,060) (161,325) (161,325) ----------- ----------- ----------- Retained earnings at end of period...................... $ 6,931,232 $ 7,245,597 $ 7,526,429 =========== =========== =========== </TABLE> F-3 <PAGE> 381 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 382 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 383 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 384 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 385 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 386 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 387 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 388 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 389 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $15,328,996 $442,157 $726,392 $1,193,872 $8,821,331 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- ---------- ---------- Adjusted Shareholders' Statement.............. $15,328,996 442,157 726,392 1,193,872 8,821,331 =========== -------- -------- ---------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... (131) (207) (207) Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- ---------- Total non-operating items..................... (131) (207) (207) -------- -------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. (1,996) (3,146) (3,146) Adjustment for ownership in other Belk entities.................................. (2,825,886) -------- -------- ---------- ---------- Per Model..................................... $440,030 $723,039 $1,190,519 $5,995,445 ======== ======== ========== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (200,588) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (618,114) Loans receivable from affiliates, net..... -- Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... 800,000 ----------- Net debt (cash)............................... (18,702) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $ (18,702) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 390 SUPPLEMENT NO. 6 <PAGE> 391 BELK OF ATHENS, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated 1998 ----------------------, -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 6 <PAGE> 392 BELK-SIMPSON CO. OF BAINBRIDGE, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Simpson Co. of Bainbridge, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 52.0164 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 126,504 shares of New Belk Class A Common Stock which will represent approximately 0.2108% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 393 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 394 BELK-SIMPSON CO. OF BAINBRIDGE, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-SIMPSON CO. OF BAINBRIDGE, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Simpson Co. of Bainbridge, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 52.0164 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 395 BELK-SIMPSON CO., OF BAINBRIDGE, GA., INC. SUPPLEMENT NO. 7 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 7 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-SIMPSON CO., OF BAINBRIDGE, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 16 SELECTED HISTORICAL FINANCIAL INFORMATION................... 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 18 BUSINESS OF THE COMPANY..................................... 18 SECURITY OWNERSHIP OF THE COMPANY........................... 19 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 396 THE COMPANY The Company was incorporated as a Georgia corporation in 1950. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 52.0164 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 397 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 7,200 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A 3 <PAGE> 398 Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to 4 <PAGE> 399 be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. 5 <PAGE> 400 Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board shall have concurrent power, by vote of a majority of all of the directors, to make, alter, amend and rescind the Company Bylaws. The bylaws enacted by the Shareholders may be affected by action of the Company Board and vice versa; provided, however, the Company Board may not re-enact a bylaws which the Shareholders have repealed or altered, nor may it repeal a bylaw enacted by the Shareholders which limits the powers of the Company Board or enhances or protects the right of Shareholders, without the consent of the Shareholders. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action 6 <PAGE> 401 which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless 7 <PAGE> 402 otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 403 Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he 9 <PAGE> 404 was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not .indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 405 circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 406 The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose; and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. 12 <PAGE> 407 A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts 13 <PAGE> 408 awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- --------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales.................... $3,638,258 $3,638,258 0.6 $(482,116) $2,665,071 EBITDA....................... 343,141 342,743 7 (482,116) 2,881,317 EBIT......................... 312,855 312,456 10 (482,116) 3,606,676 Net Income................... 196,727 196,480 15 -- 2,947,200 Book Equity.................. 1,744,365 1,744,092 1 -- 1,744,092 </TABLE> 14 <PAGE> 409 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ----------- Total $ N/A =========== Relative Operating Value of Company $ 3,606,676 Relative Operating Value of Other Companies Owned by Company + -- ----------- Total Relative Value of Company = $ 3,606,676 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. 16.0% X $ 3,606,676 = $ 577,068 Belk of Toccoa, Ga., Inc. 5.3333 X 3,606,676 = 192,355 Belk of Waycross, Ga., Inc. 11.1111 X 3,606,676 = 400,741 ----------- Total $ 1,170,164 =========== Total Relative Value of Company $ 3,606,676 Total Relative Value of Company Owned by Other Belk Companies - 1,170,164 ----------- Net Relative Value of Company = $ 2,436,512 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 2,436,512 / $1,155,623,145 = .2108% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.2108% X 60,000,007) / 2,432 = 52.0164 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 15 <PAGE> 410 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 54.65 Book value per share(2)................................... 484.55 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 49.37 Book value per share...................................... 658.63 </TABLE> - --------------- (1) Based on 3,600 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 3,600 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 16 <PAGE> 411 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 3,558 $ 3,612 $ 3,638 Net income.................................................. 125 127 197 Per common share Net income (loss)(1)...................................... 34.83 35.15 54.65 Dividends................................................. 15.00 15.00 15.00 Book value(2)............................................. 424.75 444.90 484.55 Total assets................................................ 1,826 1,876 2,108 Shareholders' equity........................................ 1,529 1,602 1,744 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $2,440 $2,752 Income from operations...................................... 182 258 </TABLE> - --------------- (1) Based on 3,600 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 3,600 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 17 <PAGE> 412 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The information which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Comparable store sales increased for the nine months ended November 1, 1997 due to changes in the merchandise mix, including adding new higher volume lines and improving ladies ready-to-wear. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Bainbridge Mall in Bainbridge, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Bergren group office in Gainesville, Florida. Facilities. The Company leases its store building, which contains approximately 45,000 square feet of floor area. The current term of the lease expires in 2003. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include K-Mart, Wal-Mart and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 18 <PAGE> 413 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 1,556 43.2% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(d).................................................... 1,312 36.4% H. W. McKay Belk (Director and Executive Officer) (a)(d).... 1,312 36.4% John R. Belk (Director and Executive Officer) (a)(d)........ 1,312 36.4% Henderson Belk (Director) (b)(c)............................ 80 2.2% Sarah Belk Gambrell (Director) (b)(c)....................... 464 12.9% John A. Kuhne (Director) (e)................................ 570 15.8% Lucy Simpson Kuhne (f)...................................... 930 25.8% Mary E. S. Hanahan.......................................... 210 5.8% Kate Simpson (f)............................................ 420 11.7% Claire E. Russo (f)......................................... 360 10.0% Byron L. Bergren (Executive Officer)........................ 0 * James Madden (Executive Officer)............................ 0 * Belk Enterprises, Inc....................................... 576 16.0% Belk of Toccoa, Ga., Inc.................................... 192 5.3% Belk of Waycross, Ga., Inc.................................. 400 11.1% Kate McArver Simpson, Lucy Caroline Bowden Simpson, Kuhne and Hazel Claire M. Efird as Personal Representative of The Estate of William Henry Belk Simpson, Deceased........ 360 10.0% All Directors and Executive Officers as a group (8 persons).................................................. 2,690 74.7% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Henderson Belk -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; John A. Kuhne, Lucy Simpson Kuhne, Kate Simpson, Claire E. Russo, 14 South Main Street, Greenville, S.C. 29601; Mary E. S. Hanahan -- P.O. Box 1294, Charleston, S.C. 29402; Byron L. Bergren and James Madden -- 1312 N. Main Street, Gainesville, Fla. 32601; Belk Enterprises, Inc., Belk of Toccoa, Ga., Inc. and Belk of Waycross, Ga., Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 84 shares held by Thomas M. Belk, Trustee u/a dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 60 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by 19 <PAGE> 414 John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Includes 20 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 576 shares held by Belk Enterprises, Inc. and 192 shares held by Belk of Toccoa, Ga., Inc. and 400 shares held by Belk of Waycross, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (e) Includes 570 shares held by John R. Belk's spouse, Lucy Simpson Kuhne. (f) Includes 360 shares held by the Estate of William Henry Belk Simpson. Voting and investment power is shared by the Personal Representatives, who are Kate Simpson, Lucy Kuhne and Claire Russo. 20 <PAGE> 415 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 416 BELK-SIMPSON CO., OF BAINBRIDGE, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 40,596 $ 42,010 Accounts receivable, net.................................. 572,646 693,915 Merchandise inventory..................................... 622,148 745,512 Receivable from affiliates, net........................... 403,897 440,106 Refundable income taxes................................... 18,949 -- Deferred income taxes..................................... 7,223 2,781 Other..................................................... 33,309 26,230 ---------- ---------- Total current assets........................................ 1,698,768 1,950,554 Investments................................................. 273 273 Property, plant and equipment, net.......................... 159,224 137,987 Other noncurrent assets..................................... 17,929 19,143 ---------- ---------- $1,876,194 $2,107,957 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 227,259 $ 258,880 Accrued income taxes...................................... -- 62,621 ---------- ---------- Total current liabilities................................... 227,259 321,501 Deferred income taxes....................................... 19,617 14,672 Other noncurrent liabilities................................ 27,680 27,419 ---------- ---------- Total liabilities........................................... 274,556 363,592 Shareholders' equity: Common stock.............................................. 360,000 360,000 Retained earnings......................................... 1,241,638 1,384,365 ---------- ---------- Total shareholders' equity.................................. 1,601,638 1,744,365 ---------- ---------- $1,876,194 $2,107,957 ========== ========== </TABLE> F-2 <PAGE> 417 BELK-SIMPSON CO., OF BAINBRIDGE, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales.......................................... 3,558,458 3,611,604 3,649,518 Less: Leased Sales......................................... -- -- 11,260 ---------- ---------- ---------- Net sales.................................................. 3,558,458 3,611,604 3,638,258 Operating costs and expenses............................... 3,358,423 3,433,400 3,329,188 ---------- ---------- ---------- Income from operations..................................... 200,035 178,204 309,070 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 5,855 15,231 3,710 Gain (loss) on disposal of property, plant and equipment............................................. (1,245) 450 398 Miscellaneous, net....................................... (5,695) (2,463) 3,387 ---------- ---------- ---------- Total other expense, net................................... (1,085) 13,218 7,495 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 198,950 191,422 316,565 Income tax expense (benefit)............................... 73,561 64,877 119,838 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 125,389 126,545 196,727 ---------- ---------- ---------- Net earnings............................................... 125,389 126,545 196,727 Retained earnings at beginning of period................... 1,097,704 1,169,093 1,241,638 Dividends paid............................................. (54,000) (54,000) (54,000) ---------- ---------- ---------- Retained earnings at end of period......................... $1,169,093 $1,241,638 $1,384,365 ========== ========== ========== </TABLE> F-3 <PAGE> 418 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 419 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 420 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 421 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 422 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 423 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 424 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 425 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 426 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $3,638,258 $196,727 $312,854 $343,141 $1,744,365 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- -------- ---------- Adjusted Shareholders' Statement............... $3,638,258 196,727 312,854 343,141 1,744,365 ========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ (247) (398) (398) Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -------- -------- -------- Total non-operating items...................... (247) (398) (398) -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (273) -------- -------- -------- ---------- Per Model...................................... $196,480 $312,456 $342,743 $1,744,092 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (42,010) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... (440,106) Loans receivable from affiliates, net...... -- Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ -- Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ (482,116) Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ (482,116) ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 427 SUPPLEMENT NO. 7 <PAGE> 428 BELK-SIMPSON CO., OF BAINBRIDGE, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: ,1998 --------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 7 <PAGE> 429 BELK OF CANTON, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Canton, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 29.6643 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 56,659 shares of New Belk Class A Common Stock which will represent approximately 0.0944% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 430 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 431 BELK OF CANTON, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF CANTON, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Canton, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 29.6643 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 432 BELK OF CANTON, GA., INC. SUPPLEMENT NO. 8 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 8 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF CANTON, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 433 THE COMPANY The Company was incorporated as a Georgia corporation in 1934 as Gallant-Belk Co. of Winder, Ga. Inc. The Company changed its name to Belk of Canton, Ga., Inc. on July 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 29.6643 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 434 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to share the risks associated with the Company's relocation of its former store in Winder to Canton, Georgia, where Belk has no history of store operations. There is no assurance that the new Canton store will meet its financial projections. If the new Canton store does not meet these projections, the financial condition and results of operations of the Company may be adversely affected. The Merger would enable the Company to share with New Belk the risk of relocating the Winder store to Canton. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. 3 <PAGE> 435 Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 4,048 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New 4 <PAGE> 436 Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor 5 <PAGE> 437 of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special 6 <PAGE> 438 meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. 7 <PAGE> 439 The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. 8 <PAGE> 440 Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and 9 <PAGE> 441 (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in 10 <PAGE> 442 the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes 11 <PAGE> 443 an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. 12 <PAGE> 444 If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in 13 <PAGE> 445 demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 446 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ------ -------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales................... $1,843,637 $1,843,637 0.6 $(1,101,473) $2,207,655 EBITDA...................... 74,753 74,753 7 (1,101,473) 1,624,744 EBIT........................ 64,350 64,350 10 (1,101,473) 1,744,973 Net Income.................. 84,035 84,035 15 -- 1,260,525 Book Equity................. 1,726,756 1,726,336 1 -- 1,726,336 </TABLE> 15 <PAGE> 447 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ----------- Total $ N/A =========== Relative Operating Value of Company $ 2,207,655 Relative Operating Value of Other Companies Owned by Company + -- ----------- Total Relative Value of Company = $ 2,207,655 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Gallant-Belk Company -- Anderson, S.C. 6.9011% X $ 2,207,655 = $ 152,353 Belk of Athens, Ga., Inc. 1.3458% X 2,207,655 = 29,711 Belk Brothers Company 14.2340% X 2,207,655 = 314,238 Belk Enterprises, Inc. 24.6718% X 2,207,655 = 544,668 Belk of Dalton, Ga., Inc. 2.1739% X 2,207,655 = 47,992 Belk of Thomaston, Ga., Inc. 1.2422% X 2,207,655 = 27,423 ----------- Total $ 1,116,385 =========== Total Relative Value of Company $ 2,207,655 Total Relative Value of Company Owned by Other Belk Companies - 1,116,385 ----------- Net Relative Value of Company = $ 1,091,270 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 1,091,270 / $1,155,623,145 = .0944% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.0944% X 60,000,007) / 1,910 = 29.6643 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 448 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 21.75 Book value per share(2)................................... 446.88 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 28.16 Book value per share...................................... 375.61 </TABLE> - --------------- (1) Based on 3,864 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 3,864 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 449 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 1,994 $ 1,902 $ 1,844 Net income.................................................. 92 69 84 Per common share Net income (loss)(1)...................................... 23.72 17.77 21.75 Dividends................................................. 15.00 15.00 15.00 Book value(2)............................................. 437.37 440.14 446.88 Total assets................................................ 1,897 1,869 1,898 Shareholders' equity........................................ 1,690 1,701 1,727 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $1,245 $1,058 Income (loss) from operations............................... (1) 44 </TABLE> - --------------- (1) Based on 3,864 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 3,864 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 450 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Riverstone Plaza in Canton, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The Company recently closed its store in Winder, Georgia to open the new store in Canton, Georgia. The Company closed the Winder store in December 1997 because the facility was outmoded and the Company determined that the prospects for long-term growth of the store's business were poor. The Company determined that opening a store in Canton would provide more opportunity for the long-term growth of the Company's business. The Company will not incur any obligations in connection with closing the Winder store. The Canton store is a full-line retail department store that carries nearly twice the merchandise inventory that was available in the much smaller former store in Winder. The store is managed out of the Kerr group office in Norcross, Georgia. Facilities. The Company leases the Canton store building, which contains approximately 60,000 square feet of floor area. The current term of the lease expires in 2018. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's markets include Penney and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 451 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)........................................... 2,774 71.8% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(d)(e)................................................. 2,326 60.2% H. W. McKay Belk (Director and Executive Officer) (b)(d)(e)................................................. 2,326 60.2% John R. Belk (Director and Executive Officer) (b)(d)(e)..... 2,286 59.2% Henderson Belk (Director) (c)............................... 4 * Sarah Belk Gambrell (c)..................................... 566 14.6% Leroy Robinson (Director) (b)............................... 312 8.1% Katherine McKay Belk (b).................................... 312 8.1% Katherine Belk Morris (b)................................... 372 9.6% Robert K. Kerr, Jr. (Director and Executive Officer)........ 0 * Gallant-Belk Company........................................ 266.67 6.9% Belk Enterprises, Inc. ..................................... 953.33 24.7% J.V. Properties............................................. 550.00 14.2% Montgomery Investment Company............................... 236.00 6.1% Thomas M. Belk, Trustee U/A................................. 312 8.1% All Directors and Executive Officers as a group (7 persons).................................................. 2,914 75.4% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071; Gallant-Belk Company, Belk Enterprises, Inc., J.V. Properties and Montgomery Investment Company -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 236 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 312 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 4 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 20 <PAGE> 452 (d) Includes 266.67 shares held by Gallant-Belk Company, 52.00 shares held by Belk of Athens, Ga., Inc., 84.00 shares held by Belk of Dalton, Ga., Inc., 953.33 shares held by Belk Enterprises, Inc., and 48.00 shares held by Belk of Thomaston, Ga., Inc. which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (e) Includes 550 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. 21 <PAGE> 453 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 454 BELK OF CANTON, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 25,512 $ 25,059 Accounts receivable, net.................................. 236,685 283,443 Merchandise inventory..................................... 471,906 446,814 Receivable from affiliates, net........................... 117,482 126,416 Refundable income taxes................................... 1,618 -- Deferred income taxes..................................... 3,573 -- Other..................................................... 18,985 18,685 ---------- ---------- Total current assets........................................ 875,761 900,417 Loans receivable from affiliates, net....................... 950,000 950,000 Investments................................................. 421 421 Property, plant and equipment, net.......................... 27,237 32,328 Deferred income taxes....................................... -- 638 Other noncurrent assets..................................... 15,208 14,323 ---------- ---------- $1,868,627 $1,898,127 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 129,187 $ 119,664 Deferred income taxes..................................... -- 2,850 Accrued income taxes...................................... 5,135 16,906 ---------- ---------- Total current liabilities................................... 134,322 139,420 Deferred income taxes....................................... 1,198 -- Other noncurrent liabilities................................ 32,425 31,950 ---------- ---------- Total liabilities........................................... 167,945 171,370 Shareholders' equity: Common stock.............................................. 386,400 386,400 Additional paid in capital................................ 1,236 1,236 Retained earnings......................................... 1,313,046 1,339,121 ---------- ---------- Total shareholders' equity.................................. 1,700,682 1,726,757 ---------- ---------- $1,868,627 $1,898,127 ========== ========== </TABLE> F-2 <PAGE> 455 BELK OF CANTON, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $1,993,948 $1,902,138 $1,843,637 Operating costs and expenses............................... 1,905,398 1,861,142 1,779,628 ---------- ---------- ---------- Income from operations..................................... 88,550 40,996 64,009 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 44,929 56,357 49,242 Miscellaneous, net....................................... (2,300) 663 341 ---------- ---------- ---------- Total other expense, net................................... 42,629 57,020 49,583 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 131,179 98,016 113,592 Income tax expense (benefit)............................... 39,521 29,369 29,557 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 91,658 68,647 84,035 ---------- ---------- ---------- Net earnings............................................... 91,658 68,647 84,035 Retained earnings at beginning of period................... 1,268,661 1,302,359 1,313,046 Dividends paid............................................. (57,960) (57,960) (57,960) ---------- ---------- ---------- Retained earnings at end of period......................... $1,302,359 $1,313,046 $1,339,121 ========== ========== ========== </TABLE> F-3 <PAGE> 456 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 457 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 458 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not A-1 <PAGE> 459 including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 460 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 461 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 462 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 463 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 464 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 1,843,637 $84,035 $64,350 $74,753 $1,726,756 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- ------- ------- ------- ---------- Adjusted Shareholders' Statement.............. $ 1,843,637 84,035 64,350 74,753 1,726,756 =========== ------- ------- ------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... -- -- -- Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- ------- ------- ------- Total non-operating items..................... -- -- -- ------- ------- ------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. -- -- -- Adjustment for ownership in other Belk entities.................................. (421) ------- ------- ------- ---------- Per Model..................................... $84,035 $64,350 $74,753 $1,726,335 ======= ======= ======= ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (25,057) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (126,416) Loans receivable from affiliates, net..... (950,000) Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (1,101,473) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $(1,101,473) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 465 SUPPLEMENT NO. 8 <PAGE> 466 BELK OF CANTON, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 8 <PAGE> 467 BELK-RHODES COMPANY, OF CARROLLTON, GA. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Rhodes Company of Carrollton, Ga. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 31.6576 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 398,126 shares of New Belk Class A Common Stock which will represent approximately 0.6635% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 468 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 469 BELK-RHODES COMPANY, OF CARROLLTON, GA. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-RHODES COMPANY, OF CARROLLTON, GA.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Rhodes Company, of Carrollton, Ga. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 31.6576 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 470 BELK-RHODES COMPANY, OF CARROLLTON, GA. SUPPLEMENT NO. 9 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 9 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-RHODES COMPANY, OF CARROLLTON, GA. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 16 SELECTED HISTORICAL FINANCIAL INFORMATION................... 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 18 BUSINESS OF THE COMPANY..................................... 18 SECURITY OWNERSHIP OF THE COMPANY........................... 19 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 471 THE COMPANY The Company was incorporated as a Georgia corporation in 1946. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 31.6576 shares (the "Exchange Ratio") of Class A common stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 472 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 34,560 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 473 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 474 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or 5 <PAGE> 475 alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action 6 <PAGE> 476 which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless 7 <PAGE> 477 otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 478 Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he 9 <PAGE> 479 was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 480 circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 481 The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. 12 <PAGE> 482 A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts 13 <PAGE> 483 awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ------ -------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............... $8,826,624 $8,826,624 0.6 $(928,220) $ 6,224,194 EBITDA.................. 1,012,243 1,013,690 7 (928,220) 8,024,050 EBIT.................... 959,357 960,804 10 (928,220) 10,536,260 Net Income.............. 677,506 678,415 15 -- 10,176,225 Book Equity............. 5,294,027 5,293,769 1 -- 5,293,769 </TABLE> 14 <PAGE> 484 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ----------- Total $ N/A =========== Relative Operating Value of Company $10,536,260 Relative Operating Value of Other Companies Owned by Company + -- ----------- Total Relative Value of Company = $10,536,260 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk's Department Store of Batesburg, S.C., Inc. .2315% X $10,536,260 = $ 24,391 Belk of Dalton, Ga., Inc. 15.787% X 10,536,260 = 1,663,359 Belk Rhodes Company (Rome, Georgia) 11.2037% X 10,536,260 = 1,180,452 ----------- Total $ 2,868,202 =========== Total Relative Value of Company $10,536,260 Total Relative Value of Company Owned by Other Belk Companies - 2,868,202 ----------- Net Relative Value of Company = $ 7,668,058 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 7,668,058 / $1,155,623,145 = .6635% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.6635% X 60,000,007) / 12,576 = 31.6576 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 15 <PAGE> 485 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 39.21 Book value per share(2)................................... 306.37 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 30.05 Book value per share...................................... 400.85 </TABLE> - --------------- (1) Based on 17,280 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 17,280 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 16 <PAGE> 486 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $8,269 $8,260 $8,827 Net income.................................................. 601 612 678 Per common share Net income (loss)(1)...................................... 34.76 35.42 39.21 Dividends................................................. 10.00 12.50 12.50 Book value(2)............................................. 256.74 279.66 306.37 Total assets................................................ 5,419 5,562 6,127 Shareholders' equity........................................ 4,436 4,833 5,294 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED --------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ------------ ------------ (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $6,015 $6,500 Income from operations...................................... 532 248 </TABLE> - --------------- (1) Based on 17,280 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 17,280 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 17 <PAGE> 487 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in McIntosh Plaza in Carrollton, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Kerr group office in Norcross, Georgia. The Company closed its store at First Tuesday Mall in Carrollton in 1997 and opened its store at McIntosh Plaza. The Company has continuing monthly lease obligations of $10,816 until October 1998 on the First Tuesday Mall lease. Facilities. The Company leases the land upon which it built its store building, which contains approximately 70,000 square feet of floor area. The current term of the lease expires in 2017. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Target, Penney and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 18 <PAGE> 488 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)..... 3,754 21.7% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(c)(d)................................................. 5,406 31.3% H. W. McKay Belk (Director and Executive Officer) (a)(c).... 3,470 20.1% John R. Belk (Director and Executive Officer) (a)(c)........ 3,470 20.1% Henderson Belk (Director) (b)............................... 144 * Sarah Belk Gambrell (Director) (b).......................... 2,696 15.6% Cecil David Rhodes, Jr. (Director).......................... 1,440 8.3% C. D. Rhodes, III (Director)................................ 0 * Robert Earl Rhodes (Director) (e)........................... 928 5.4% Thelma E. Rhodes............................................ 960 5.6% Cecil D. Rhodes Trust....................................... 1,440 8.3% Ralph A. Pitts (Director)................................... 0 * Robert K. Kerr, Jr. (Executive Officer)..................... 0 * Belk of Dalton, Ga., Inc. .................................. 2,728 15.8% Belk-Rhodes Company, (Rome, Georgia) ....................... 1,936 11.2% All Directors and Executive Officers as a group (9 persons).................................................. 11,838 68.5% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson and Ralph A. Pitts -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071; Cecil David Rhodes, Jr. -- 209 Brentwood Drive, Wilson, N.C. 27893; C. D. Rhodes, III, Darlington School, 1014 Cave Spring Road, Rome, Ga. 30161; Robert Earl Rhodes -- 245 Jackson Street, Denver, Co. 80206-5524; Thelma E. Rhodes -- 804 Highlands Avenue, Rome, Ga. 30161; Cecil D. Rhodes Trust -- Ernest J. Rudert & Company, Box 1744, Rome, Ga. 30161; Belk of Dalton, Ga., Inc. and Belk-Rhodes Company, (Rome, Georgia) -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below (a) Includes 394 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 144 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 19 <PAGE> 489 (c) Includes 2,728 shares held by Belk of Dalton, Ga., Inc. and 40 shares of Belk's Department Store of Batesburg, S.C., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Includes 1,936 shares held by Belk-Rhodes Company, (Rome, Georgia), which shares are voted by the President of this Corporation, under authority given by the directors of the Corporation at the annual meeting of directors held in March, 1997. (e) Includes 704 shares held by Robert Earl Rhodes' wife, Sandra Jeanne Rhodes. 20 <PAGE> 490 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 491 BELK-RHODES COMPANY, OF CARROLLTON, GA. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 69,418 $ 102,998 Accounts receivable, net.................................. 974,744 1,194,177 Merchandise inventory..................................... 1,522,436 1,591,370 Receivable from affiliates, net........................... 393,068 225,222 Deferred income taxes..................................... 12,366 -- Other..................................................... 76,030 104,044 ---------- ---------- Total current assets........................................ 3,048,062 3,217,811 Loans receivable from affiliates, net....................... 2,200,000 600,000 Investments................................................. 258 258 Property, plant and equipment, net.......................... 241,377 2,229,102 Deferred income taxes....................................... 23,539 36,127 Other noncurrent assets..................................... 48,616 43,883 ---------- ---------- $5,561,852 $6,127,181 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 540,423 $ 564,621 Deferred income taxes..................................... -- 5,505 Accrued income taxes...................................... 19,713 76,752 ---------- ---------- Total current liabilities................................... 560,136 646,878 Other noncurrent liabilities................................ 169,195 186,276 ---------- ---------- Total liabilities........................................... 729,331 833,154 Shareholders' equity: Common stock.............................................. 1,728,000 1,728,000 Retained earnings......................................... 3,104,521 3,566,027 ---------- ---------- Total Shareholders' equity.................................. 4,832,521 5,294,027 ---------- ---------- $5,561,852 $6,127,181 ========== ========== </TABLE> F-2 <PAGE> 492 BELK-RHODES COMPANY, OF CARROLLTON, GA. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $8,269,295 $8,259,577 $8,826,624 Operating costs and expenses............................... 7,406,432 7,434,053 7,864,600 ---------- ---------- ---------- Income from operations..................................... 862,863 825,524 962,024 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 107,153 152,969 119,459 Gain (loss) on disposal of property, plant and equipment............................................. -- -- (1,447) Miscellaneous, net....................................... (10,141) (400) (1,220) ---------- ---------- ---------- Total other expense, net................................... 97,012 152,569 116,792 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 959,875 978,093 1,078,816 Income tax expense (benefit)............................... 359,244 366,045 401,310 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 600,631 612,048 677,506 ---------- ---------- ---------- Net earnings............................................... 600,631 612,048 677,506 Retained earnings at beginning of period................... 3,144,642 2,708,473 3,104,521 Dividends paid............................................. (172,800) (216,000) (216,000) Retained earnings adjustments.............................. (864,000) -- -- ---------- ---------- ---------- Retained earnings at end of period......................... $2,708,473 $3,104,521 $3,566,027 ========== ========== ========== </TABLE> F-3 <PAGE> 493 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current Shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 494 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of Shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total Shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 495 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 496 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 497 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 498 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 499 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 500 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 501 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Applicable Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Applicable Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $8,826,624 $677,506 $959,358 $1,012,243 $5,294,027 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- ---------- ---------- Adjusted Shareholders' Statement............... $8,826,624 677,506 959,358 1,012,243 5,294,027 ========== -------- -------- ---------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ (909) (1,447) (1,447) Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- -------- -------- ---------- Total non-operating items...................... (909) (1,447) (1,447) -------- -------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (258) -------- -------- ---------- ---------- Per Model...................................... $678,415 $960,805 $1,013,690 $5,293,769 ======== ======== ========== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (102,998) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... (225,222) Loans receivable from affiliates, net...... (600,000) Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ -- Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ (928,220) Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ (928,220) ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 502 SUPPLEMENT NO. 9 <PAGE> 503 BELK-RHODES COMPANY, OF CARROLLTON, GA. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 9 <PAGE> 504 BELK'S DEPARTMENT STORE OF CARTERSVILLE, GEORGIA, INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk's Department Store of Cartersville, Georgia, Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 31.3416 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 129,096 shares of New Belk Class A Common Stock which will represent approximately 0.2152% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 505 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 506 BELK'S DEPARTMENT STORE OF CARTERSVILLE, GEORGIA, INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK'S DEPARTMENT STORE OF CARTERSVILLE, GEORGIA, INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk's Department Store of Cartersville, Georgia, Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 31.3416 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 507 BELK'S DEPARTMENT STORE OF CARTERSVILLE, GEORGIA, INCORPORATED SUPPLEMENT NO. 10 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 10 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK'S DEPARTMENT STORE OF CARTERSVILLE, GEORGIA, INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/ PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 21 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 508 THE COMPANY The Company was incorporated as a Georgia corporation in 1975. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 31.3416 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 509 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 6,312 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A 3 <PAGE> 510 Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to 4 <PAGE> 511 be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. 5 <PAGE> 512 Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board shall have concurrent power, by vote of a majority of all of the directors, to make, alter, amend and rescind the Company Bylaws. The bylaws enacted by the Shareholders may be affected by action of the Company Board and vice versa; provided, however, the Company Board may not re-enact a bylaw which the Shareholders have repealed or altered, nor may it repeal a bylaw enacted by the Shareholders which limits the powers of the Company Board or enhances or protects the right of Shareholders, without the consent of the Shareholders. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action 6 <PAGE> 513 which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless 7 <PAGE> 514 otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 515 Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he 9 <PAGE> 516 was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 517 circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 518 The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. 12 <PAGE> 519 A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts 13 <PAGE> 520 awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 521 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ------ -------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $5,461,147 $5,461,147 0.6 $(533,558) $3,810,247 EBITDA............... 337,578 337,578 7 (533,558) 2,896,605 EBIT................. 282,040 282,040 10 (533,558) 3,353,959 Net Income........... 221,212 221,213 15 -- 3,318,195 Book Equity.......... 3,795,342 3,795,342 1 -- 3,795,342 </TABLE> 15 <PAGE> 522 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OF OTHER TOTAL RELATIVE VALUE RELATIVE OPERATING BELK OF VALUE OF OTHER BELK COMPANIES COMPANIES OWNED BY OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ----------- Total $ N/A =========== Relative Operating Value of Company $ 3,810,247 Relative Operating Value of Other Companies Owned by Company + -- ----------- Total Relative Value of Company = $ 3,810,247 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE PERCENTAGE OWNERSHIP OF OF OTHER BELK COMPANY OWNED BY OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OTHER THAT OWN COMPANY IN COMPANY OF COMPANY BELK COMPANIES <S> <C> <C> <C> <C> <C> Gallant-Belk Company -- Anderson, SC 15.2091% X $ 3,810,247 = $ 579,505 Belk Brothers Company 4.7529% X 3,810,247 = 181,097 Belk Enterprises, Inc. 3.0418% X 3,810,247 = 115,900 Belk of Dalton, Ga., Inc. .3802% X 3,810,247 = 14,487 Belk of LaGrange, Ga., Inc. 11.2167 X 3,810,247 = 427,384 Belk of Thomaston, Ga., Inc. .1426 X 3,810,247 = 5,433 ----------- Total $ 1,323,806 =========== Total Relative Value of Company $ 3,810,247 Total Relative Value of Company Owned by Other Belk Companies - 1,323,806 ----------- Net Relative Value of Company = $ 2,486,441 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- PERCENTAGE OF NEW BELK CLASS AGGREGATE NET RELATIVE VALUE A NET RELATIVE VALUE OF OF ALL COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 2,486,441 / $1,155,623,145 = .2152% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.2152% X 60,000,007) / 4,119 = 31.3416 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. 16 <PAGE> 523 The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 524 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 35.05 Book value per share(2)................................... 601.29 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 29.75 Book value per share...................................... 396.85 </TABLE> - --------------- (1) Based on 6,312 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 6,312 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 525 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 5,769 $ 5,541 $ 5,461 Net income.................................................. 374 280 221 Per common share Net income (loss)(1)...................................... 59.28 44.43 35.05 Net dividends............................................. 10.00 15.00 15.00 Book value(2)............................................. 551.81 581.24 601.29 Total assets................................................ 4,152 4,064 4,175 Shareholders' equity........................................ 3,483 3,669 3,795 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED --------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ------------ ------------ (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $ 3,738 $ 4,275 Income from operations...................................... 104 177 </TABLE> - --------------- (1) Based on 6,312 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 6,312 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 19 <PAGE> 526 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Main Street Shopping Center in Cartersville, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Kerr group office in Norcross, Georgia. The Company closed its store at Cartersville Plaza and opened its store at Main Street Shopping Center in 1997. The Company has no continuing obligations with respect to the Cartersville Plaza lease. Facilities. The Company leases its store building, which contains approximately 60,000 square feet of floor area. The current term of the lease expires in 2017. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Target, Goody's and Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 20 <PAGE> 527 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 4,449 70.5% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(b)(c)(d).............................................. 3,273 51.9% H. W. McKay Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 3,249 51.5% John R. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 3,321 52.6% Henderson Belk (Director)................................... 0 * Sarah Belk Gambrell......................................... 960 15.2% Leroy Robinson (Director) (a)(b)............................ 1,008 16.0% Robert K. Kerr, Jr. (Director and Executive Officer)........ 0 * Katherine McKay Belk (a)(b)................................. 1,008 16.0% Katherine Belk Morris (a)(b)................................ 1,056 16.7% Gallant-Belk Company........................................ 960 15.2% Belk of LaGrange, Ga., Inc. ................................ 708 11.2% Thomas M. Belk, Trustee U/A dated September 15, 1993........ 960 15.2% All Directors and Executive Officers as a group (7 persons).................................................. 4,689 74.3% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071; Gallant-Belk Company, Belk of LaGrange, Ga., Inc., and Thomas M. Belk, Trustee U/A dated September 15, 1993 -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 48 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (b) Includes 960 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 192 shares held by Belk Enterprises, Inc., 960 shares held by Gallant-Belk Company, 24 shares held by Belk of Dalton, Ga., Inc., 708 shares held by Belk of LaGrange, Ga., Inc. and 9 shares held by Belk of Thomaston, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. 21 <PAGE> 528 (d) Includes 300 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. 22 <PAGE> 529 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 </TABLE> F-1 <PAGE> 530 BELK'S DEPARTMENT STORE OF CARTERSVILLE, GEORGIA, INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 30,779 $ 55,829 Accounts receivable, net.................................. 724,201 871,691 Merchandise inventory..................................... 1,017,975 1,024,203 Receivable from affiliates, net........................... 278,634 377,730 Refundable income taxes................................... 31,284 1,865 Deferred income taxes..................................... 10,086 -- Other..................................................... 43,549 45,674 ---------- ---------- Total current assets........................................ 2,136,508 2,376,992 Loans receivable from affiliates, net....................... 1,400,000 100,000 Property, plant and equipment, net.......................... 506,154 1,680,114 Other noncurrent assets..................................... 20,984 17,414 ---------- ---------- $4,063,646 $4,174,520 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 327,754 $ 295,253 Deferred income taxes..................................... -- 5,882 Accrued income taxes...................................... -- 21,399 ---------- ---------- Total current liabilities................................... 327,754 322,534 Deferred income taxes....................................... 34,152 24,326 Other noncurrent liabilities................................ 32,930 32,318 ---------- ---------- Total liabilities........................................... 394,836 379,178 Shareholders' equity: Common stock.............................................. 631,200 631,200 Additional paid in capital................................ 97,309 97,309 Retained earnings......................................... 2,940,301 3,066,833 ---------- ---------- Total shareholders' equity.................................. 3,668,810 3,795,342 ---------- ---------- $4,063,646 $4,174,520 ========== ========== </TABLE> F-2 <PAGE> 531 BELK'S DEPARTMENT STORE OF CARTERSVILLE, GEORGIA, INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, 1995 1996 FEBRUARY 1, ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $5,768,692 $5,540,588 $5,461,147 Operating costs and expenses............................... 5,221,001 5,189,136 5,179,267 ---------- ---------- ---------- Income from operations..................................... 547,691 351,452 281,880 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 68,326 96,588 71,047 Miscellaneous, net....................................... (6,550) 824 160 ---------- ---------- ---------- Total other expense, net................................... 61,776 97,412 71,207 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 609,467 448,864 353,087 Income tax expense (benefit)............................... 235,310 168,425 131,875 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 374,157 280,439 221,212 ---------- ---------- ---------- Net earnings............................................... 374,157 280,439 221,212 Retained earnings at beginning of period................... 2,443,505 2,754,542 2,940,301 Dividends paid............................................. (63,120) (94,680) (94,680) ---------- ---------- ---------- Retained earnings at end of period......................... $2,754,542 $2,940,301 $3,066,833 ========== ========== ========== </TABLE> F-3 <PAGE> 532 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 533 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 534 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 535 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 536 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 537 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 538 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 539 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 540 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statement of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $5,461,147 $221,212 $282,040 $337,578 $3,795,342 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- -------- ---------- Adjusted Shareholders' Statement............... $5,461,147 221,212 282,040 337,578 3,795,342 ========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ -- -- -- Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- -------- -------- -------- Total non-operating items...................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... -- -------- -------- -------- ---------- Per Model...................................... $221,212 $282,040 $337,578 $3,795,342 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (55,829) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... (377,730) Loans receivable from affiliates, net...... (100,000) Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ -- Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ (533,559) Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ (533,559) ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 541 SUPPLEMENT NO. 10 <PAGE> 542 BELK'S DEPARTMENT STORE CARTERSVILLE, GEORGIA, INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 10 <PAGE> 543 BELK OF CORNELIA, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Cornelia, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 37.1607 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 127,238 shares of New Belk Class A Common Stock which will represent approximately 0.2121% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 544 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 545 BELK OF CORNELIA, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF CORNELIA, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Cornelia, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 37.1607 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 546 BELK OF CORNELIA, GA., INC. SUPPLEMENT NO. 11 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 11 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF CORNELIA, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................... 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 547 THE COMPANY The Company was incorporated as a Georgia corporation in 1940 as Belk-Gallant Company of Cornelia, Ga., Inc. The Company changed its name to Belk of Cornelia, Ga. Inc. on July 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 37.1607 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 548 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 14,400 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer 3 <PAGE> 549 restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 550 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class, or 5 <PAGE> 551 alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action 6 <PAGE> 552 which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless 7 <PAGE> 553 otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 554 Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he 9 <PAGE> 555 was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 556 circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 557 The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. 12 <PAGE> 558 A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts 13 <PAGE> 559 awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ------ -------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales................... $5,162,618 $5,162,618 0.6 $(1,687,337) $4,784,908 EBITDA...................... 349,375 347,775 7 (1,687,337) 4,121,762 EBIT........................ 295,900 294,300 10 (1,687,337) 4,630,337 Net Income.................. 234,730 233,725 15 -- 3,505,875 Book Equity................. 3,398,658 3,300,230 1 -- 3,300,230 </TABLE> 14 <PAGE> 560 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk of Covington, Ga., Inc. 2.6190% X $ 4,579,688 = $ 119,942 Belk of Toccoa, Ga., Inc. .9717% X 4,349,964 = 42,269 ---------- Total $ 162,211 ========== Relative Operating Value of Company $4,784,908 Relative Operating Value of Other Companies Owned by Company + 162,211 ---------- Total Relative Value of Company = $4,947,119 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Gallant-Belk Company 9.2014% X $ 4,947,119 = $ 455,204 Belk Brothers Company 16.3484% X 4,947,119 = 808,775 Belk Enterprises, Inc. 19.3287% X 4,947,119 = 956,214 Belk of Dalton, Ga., Inc. 1.2153 X 4,947,119 = 60,122 Belk of La Grange, Ga., Inc. 3.6169% X 4,947,119 = 178,933 Belk of Thomaston, Ga., Inc. .7523 X 4,947,119 = 37,217 ---------- Total $2,496,465 ========== Total Relative Value of Company $4,947,119 Total Relative Value of Company Owned by Other Belk Companies - 2,496,465 ---------- Net Relative Value of Company = $2,450,654 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 2,450,654 / $1,155,623,145 = .2121% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.2121% X 60,000,007) / 3,424 = 37.1607 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. 15 <PAGE> 561 The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 562 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 33.96 Book value per share(2)................................... 491.70 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 35.27 Book value per share...................................... 470.53 </TABLE> - --------------- (1) Based on 6,312 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 6,312 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 563 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 5,302 $ 5,103 $ 5,163 Net income.................................................. 368 282 235 Per common share Net income (loss)(1)...................................... 53.22 40.74 33.96 Dividends................................................. 16.00 16.00 15.00 Book value(2)............................................. 449.00 473.74 491.70 Total assets................................................ 3,686 3,686 3,830 Shareholders' equity........................................ 3,104 3,275 3,399 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $3,538 $3,395 Income from operations...................................... 93 232 </TABLE> - --------------- (1) Based on 6,312 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 6,312 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 564 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Habersham County Shopping Center in Cornelia, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Kerr group office in Norcross, Georgia. Facilities. The Company leases its store building, which contains approximately 47,000 square feet of floor area. The current term of the lease expires in 1999, but the Company has options to extend the lease through 2019. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart and K-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 565 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)........................................... 5,400 78.1% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(d)(e)................................................. 4,382 63.4% H. W. McKay Belk (Director and Executive Officer) (a)(d)(e)................................................. 4,386 63.4% John R. Belk (Director and Executive Officer) (a)(d)(e)..... 4,502 65.1% Katherine McKay Belk (a).................................... 856 12.4% Katherine Belk Morris (a)................................... 892 12.9% Henderson Belk (Director) (b)(c)............................ 84 1.2% Leroy Robinson (Director) (a)............................... 856 12.4% Sarah Belk Gambrell (b)(c).................................. 932 13.5% Robert K. Kerr, Jr. (Director and Executive Director)....... 0 * Thomas M. Belk (Trustee) U/A dated September 15, 1993....... 856 12.4% Gallant-Belk Company........................................ 636 9.2% Belk Enterprises, Inc....................................... 1,336 19.3% J.V. Properties............................................. 1,130 16.3% All Directors and Executive Officers as a group (12 persons).................................................. 5,252 76.0% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071; Gallant-Belk Company, Belk Enterprises, Inc., J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 856 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 40 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Includes 44 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 20 <PAGE> 566 (d) Included are 1,336 shares held by Belk Enterprises, Inc., 636 shares held by Gallant-Belk Company, 250 shares held by Belk of LaGrange, Ga, Inc., 84 shares held by Belk of Dalton, Ga., Inc. and 52 shares held by Belk of Thomaston, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (e) Included are 1,130 shares of J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. 21 <PAGE> 567 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 </TABLE> F-1 <PAGE> 568 BELK OF CORNELIA, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 59,371 $ 68,948 Accounts receivable, net.................................. 583,177 705,060 Merchandise inventory..................................... 1,066,448 1,099,865 Receivable from affiliates, net........................... 235,481 218,389 Refundable income taxes................................... 7,429 -- Deferred income taxes..................................... 7,800 -- Other..................................................... 48,765 46,480 ---------- ---------- Total current assets........................................ 2,008,471 2,138,742 Loans receivable from affiliates, net....................... 1,400,000 1,400,000 Investments................................................. 98,528 98,528 Property, plant and equipment, net.......................... 147,029 163,521 Other noncurrent assets..................................... 31,950 28,939 ---------- ---------- $3,685,978 $3,829,730 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 351,539 $ 311,714 Deferred income taxes..................................... -- 7,982 Accrued income taxes...................................... 3,536 55,215 ---------- ---------- Total current liabilities................................... 355,075 374,911 Deferred income taxes....................................... 14,552 13,115 Other noncurrent liabilities................................ 41,830 43,046 ---------- ---------- Total liabilities........................................... 411,457 431,072 Shareholders' equity: Common stock.............................................. 691,200 691,200 Additional paid in capital................................ 1,312 1,312 Retained earnings......................................... 2,582,009 2,706,146 ---------- ---------- Total shareholders' equity.................................. 3,274,521 3,398,658 ---------- ---------- $3,685,978 $3,829,730 ========== ========== </TABLE> F-2 <PAGE> 569 BELK OF CORNELIA, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $5,302,174 $5,103,243 $5,162,618 Operating costs and expenses............................... 4,789,386 4,749,289 4,869,102 ---------- ---------- ---------- Income from operations..................................... 512,788 353,954 293,516 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 75,883 92,561 78,355 Dividend income.......................................... 3,360 2,480 1,600 Miscellaneous, net....................................... (5,517) 1,097 784 ---------- ---------- ---------- Total other expense, net................................... 73,726 96,138 80,739 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 586,514 450,092 374,255 Income tax expense (benefit)............................... 218,667 168,501 139,526 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 367,847 281,591 234,729 ---------- ---------- ---------- Net earnings............................................... 367,847 281,591 234,729 Retained earnings at beginning of period................... 2,146,843 2,411,010 2,582,009 Dividends paid............................................. (103,680) (110,592) (110,592) ---------- ---------- ---------- Retained earnings at end of period......................... 2,411,010 2,582,009 2,706,146 ========== ========== ========== </TABLE> F-3 <PAGE> 570 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 571 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 572 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 573 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 574 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 575 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 576 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 577 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 578 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 5,162,618 $234,729 $295,900 $349,375 $3,398,658 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $ 5,162,618 234,729 295,900 349,375 3,398,658 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... -- -- -- Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. (1,004) (1,600) (1,600) Adjustment for ownership in other Belk entities.................................. (98,428) -------- -------- -------- ---------- Per Model..................................... $233,725 $294,300 $347,775 $3,300,230 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (68,948) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (218,389) Loans receivable from affiliates, net..... (1,400,000) Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (1,687,337) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $(1,687,337) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 579 SUPPLEMENT NO. 11 <PAGE> 580 BELK OF CORNELIA, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 11 <PAGE> 581 BELK OF COVINGTON, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Covington, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 35.3836 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 136,156 shares of New Belk Class A Common Stock which will represent approximately 0.2269% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 582 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 583 BELK OF COVINGTON, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF COVINGTON, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Covington, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 35.3836 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 584 BELK OF COVINGTON, GA., INC. SUPPLEMENT NO. 12 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 12 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF COVINGTON, GA. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 585 THE COMPANY The Company was incorporated as a Georgia corporation in 1944 as Belk-Gallant Company of Covington, Ga., Inc. The Company changed its name to Belk of Covington, Ga., Inc. on July 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 35.3836 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 586 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 6,720 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one 3 <PAGE> 587 vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. 4 <PAGE> 588 Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or 5 <PAGE> 589 more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, 6 <PAGE> 590 setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless 7 <PAGE> 591 otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 592 Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he 9 <PAGE> 593 was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 594 circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (a) by persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 595 The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect,(iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered), and (iv) be accompanied by a copy of Article 13. 12 <PAGE> 596 A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts 13 <PAGE> 597 awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales.................... $6,130,815 $6,130,815 0.6 $ (414,996) $4,093,485 EBITDA....................... 594,956 594,956 7 (414,996) 4,579,688 EBIT......................... 309,563 309,563 10 (414,996) 3,510,636 Net Income................... 241,658 222,494 15 -- 3,337,410 Book Equity.................. 3,939,016 3,938,603 1 -- 3,938,603 </TABLE> 14 <PAGE> 598 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ----------- Total $ N/A =========== Relative Operating Value of Company $ 4,579,688 Relative Operating Value of Other Companies Owned by Company + -- ----------- Total Relative Value of Company = $ 4,579,688 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Gallant-Belk Company 4.7619% X $ 4,579,688 = $ 218,080 Belk Brothers Company 11.9048% X 4,579,688 = 545,203 Belk of Cornelia, Ga., Inc. 2.619% X 4,579,688 = 119,942 Belk of LaGrange, Ga., Inc. 20.2976% X 4,579,688 = 929,567 Belk Brothers of Monroe, North Carolina, Incorporated 2.7381 X 4,579,688 = 125,396 Belk of Thomaston, Ga., Inc. .4167 X 4,579,688 = 19,084 ----------- Total $ 1,957,272 =========== Total Relative Value of Company $ 4,579,688 Total Relative Value of Company Owned by Other Belk Companies - 1,957,272 ----------- Net Relative Value of Company = $ 2,622,416 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 2,622,416 / $1,155,623,145 = .2269% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.2269% X 60,000,007) / 3,848 = 35.3836 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. 15 <PAGE> 599 The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 600 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 35.96 Book value per share(2)................................... 586.16 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 33.59 Book value per share...................................... 448.02 </TABLE> - --------------- (1) Based on 6,720 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 6,720 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 601 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 4,839 $ 5,507 $ 6,131 Net income.................................................. 406 142 242 Per common share Net Income (loss)(1)...................................... 60.34 21.14 35.96 Dividends................................................. 15.00 10.00 5.00 Book value(2)............................................. 544.06 555.20 586.16 Total assets................................................ 4,252 5,997 7,463 Shareholders' equity........................................ 3,656 3,731 3,939 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED --------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ------------ ------------ (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $4,199 $4,219 Income from operations...................................... 155 265 </TABLE> - --------------- (1) Based on 6,720 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 6,720 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 602 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Newton Plaza Mall in Covington, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Kerr group office in Norcross, Georgia. Facilities. The Company leases its store building, which contains approximately 43,000 square feet of floor area. The current term of the store lease expires in 2005. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 603 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)........................................ 4,120 61.3% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(c)(e)(f).............................................. 3,264 48.6% H. W. McKay Belk (Director and Executive Officer) (b)(c)(e)(f).............................................. 3,264 48.6% John R. Belk (Director and Executive Officer) (b)(c)(e)(f).............................................. 3,344 49.8% Henderson Belk (Director) (d)............................... 32 * Sarah Belk Gambrell (d)..................................... 924 13.8% Sarah Gambrell Knight....................................... 480 7.1% Leroy Robinson (Director) (b)(c)............................ 208 3.1% Robert K. Kerr, Jr. (Director and Executive Officer)........ 0 * Belk of LaGrange, Ga., Inc.................................. 1,364 20.3% J.V. Properties............................................. 800 11.9% All Directors and Executive Officers as a group (7 persons).................................................. 4,752 70.7% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell and Sarah Gambrell Knight -- 810 Colville Road, Charlotte, N.C. 28210; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071. All shares of common stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 816 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 88 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Includes 120 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (d) Includes 32 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (e) Includes 184 shares held by Belk Brothers Company, 320 shares held by Gallant-Belk Company, 1,364 shares held by Belk of LaGrange, Ga., Inc., 176 shares held by Belk of Cornelia, Ga., Inc., and 28 shares held by Belk of Thomaston, Ga., Inc., which shares are voted by the members of the executive 20 <PAGE> 604 Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (f) Includes 800 shares of J. V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. 21 <PAGE> 605 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 606 BELK OF COVINGTON, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 60,965 $ 72,511 Accounts receivable, net.................................. 763,934 986,805 Merchandise inventory..................................... 1,081,255 1,196,783 Refundable income taxes................................... 58,954 -- Deferred income taxes..................................... 20,560 40,413 Other..................................................... 58,989 55,627 ---------- ---------- Total current assets........................................ 2,044,657 2,352,139 Loans receivable from affiliates, net....................... 1,900,000 3,400,000 Investments................................................. 413 413 Property, plant and equipment, net.......................... 2,029,833 1,691,958 Other noncurrent assets..................................... 21,607 18,402 ---------- ---------- $5,996,510 $7,462,912 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 470,472 $ 342,374 Payables to affiliates, net............................... 1,748,023 3,057,517 Accrued income taxes...................................... -- 34,446 ---------- ---------- Total current liabilities................................... 2,218,495 3,434,337 Deferred income taxes....................................... 25,639 65,281 Other noncurrent liabilities................................ 21,418 24,278 ---------- ---------- Total liabilities........................................... 2,265,552 3,523,896 Shareholders' equity: Common stock.............................................. 672,000 672,000 Retained earnings......................................... 3,058,958 3,267,016 ---------- ---------- Total shareholders' equity.................................. 3,730,958 3,939,016 ---------- ---------- $5,996,510 $7,462,912 ========== ========== </TABLE> F-2 <PAGE> 607 BELK OF COVINGTON, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $4,839,029 $5,506,961 $6,130,815 Operating costs and expenses............................... 4,292,407 5,250,770 5,822,937 ---------- ---------- ---------- Income from operations..................................... 546,622 256,191 307,878 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 110,609 13,768 2,957 Gain (loss) on disposal of property, plant and equipment............................................. -- (64,199) -- Miscellaneous, net....................................... (5,355) 4,804 1,685 ---------- ---------- ---------- Total other expense, net................................... 105,254 (45,627) 4,642 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 651,876 210,564 312,520 Income tax expense (benefit)............................... 246,363 68,473 70,862 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 405,513 142,091 241,658 ---------- ---------- ---------- Net earnings............................................... 405,513 142,091 241,658 Retained earnings at beginning of period................... 2,679,354 2,984,067 3,058,958 Dividends paid............................................. (100,800) (67,200) (33,600) ---------- ---------- ---------- Retained earnings at end of period......................... $2,984,067 $3,058,958 $3,267,016 ========== ========== ========== </TABLE> F-3 <PAGE> 608 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 609 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 610 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 611 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 612 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 613 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 614 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 615 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 616 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 6,130,815 $241,658 $309,563 $594,956 $3,939,016 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $ 6,130,815 241,658 309,563 594,956 3,939,016 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... -- -- -- Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... (19,164) -- -- -- -------- -------- -------- Total non-operating items..................... (19,164) -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. -- -- -- Adjustment for ownership in other Belk entities.................................. (413) -------- -------- -------- ---------- Per Model..................................... $222,494 $309,563 $594,956 $3,938,603 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (72,513) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... -- Loans receivable from affiliates, net..... (3,400,000) Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... 3,057,517 Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (414,996) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $ (414,996) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 617 SUPPLEMENT NO. 12 <PAGE> 618 BELK OF COVINGTON, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: ,1998 --------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 12 <PAGE> 619 BELK OF DALTON, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Dalton, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 53.0357 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 256,640 shares of New Belk Class A Common Stock which will represent approximately 0.4277% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 620 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 621 BELK OF DALTON, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF DALTON, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Dalton, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 53.0357 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 622 BELK OF DALTON, GA., INC. SUPPLEMENT NO. 13 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 13 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF DALTON, GA. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 623 THE COMPANY The Company was incorporated as a Georgia corporation in 1942 as Belk-Gallant Company of Dalton, Ga., Inc. The Company changed its name to Belk of Dalton, Ga., Inc. on July 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 53.0357 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of such outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and the other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 624 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 8,424 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer 3 <PAGE> 625 restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 626 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or 5 <PAGE> 627 alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action 6 <PAGE> 628 which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless 7 <PAGE> 629 otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 630 Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he 9 <PAGE> 631 was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 632 circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 633 The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. 12 <PAGE> 634 A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts 13 <PAGE> 635 awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period")multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales.................... $9,013,744 $9,013,744 0.6 $2,962,176 $2,466,071 EBITDA....................... 603,831 598,863 7 2,962,176 1,229,865 EBIT......................... 349,756 344,788 10 2,962,176 485,704 Net Income................... 124,616 121,129 15 -- 1,816,935 Book Equity.................. 5,423,640 814,634 1 -- 814,634 </TABLE> 14 <PAGE> 636 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk of Athens, Ga., Inc. .2944% X $14,289,892 = $ 42,069 Belk-Rhodes Company, of Carrollton, Ga. 15.7870 X 10,536,260 = 1,663,359 Belk's Department Store of Cartersville, Georgia, Incorporated .3802 X 3,810,247 = 14,487 Belk of Cornelia, Ga., Inc. 1.2153 X 4,947,119 = 60,122 Belk of Elberton, Ga., Inc. .1356 X 1,662,395 = 2,254 Belk of Hartwell, Ga., Inc. 4.8333 X 1,270,811 = 61,422 Belk of LaGrange, Ga., Inc. 1.6387 X 25,267,525 = 414,059 Belk of Lawrenceville, Ga., Inc. 4.1186 X 6,024,824 = 248,138 Belk-Matthews Company of Milledgeville, Ga., Inc. 16.4815 X 6,178,663 = 1,018,336 Belk of Monroe, Ga., Inc. 7.4934 X 1,961,637 = 146,993 Belk of Newnan, Ga., Inc. 3.9631 X 1,320,331 = 52,326 Belk-Rhodes Company, (Rome, Georgia) 15.6373 X 6,599,184 = 1,031,934 Belk of Seneca, S.C., Inc. 10.2462 X 4,287,122 = 439,267 Belk-Matthews Company, Vidalia, Georgia, Inc. 5.3686 X 4,962,587 = 266,422 Belk of Washington, Ga., Inc. 3.3969 X 1,274,815 = 43,305 Belk of Waycross, Ga., Inc. 1.3652 X 43,824,848 = 598,298 Belk of Canton, Ga., Inc. 2.1739 X 2,207,655 = 47,992 Belk of Americus, Ga., Inc. .3436 X 2,375,853 = 8,166 ----------- Total $ 6,158,946 =========== Relative Operating Value of Company $ 2,446,071 Relative Operating Value of Other Companies Owned by Company + 6,158,946 ----------- Total Relative Value of Company = $ 8,605,017 =========== </TABLE> 15 <PAGE> 637 The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Gallant-Belk Company 7.5973% X $ 8,605,017 = $ 653,749 Belk of Athens, Ga., Inc. .6292 X 8,605,017 = 54,143 Belk Brothers Company 9.4967 X 8,605,017 = 817,193 Belk Enterprises, Inc. 7.5973 X 8,605,017 = 653,749 Belk of Thomaston, Ga., Inc. .6292 X 8,605,017 = 54,143 Belk of Toccoa, Ga., Inc. 7.5024 X 8,605,017 = 645,583 Belk of Waycross, Ga., Inc. 9.1049 X 8,605,017 = 783,478 ----------- Total $ 3,662,037 =========== Total Relative Value of Company $ 8,605,017 Total Relative Value of Company Owned by Other Belk Companies - 3,662,037 ----------- Net Relative Value of Company = $ 4,942,980 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 4,942,980 / $1,155,623,145 = .4277% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.4277% X 60,000,007) / 4,839 = 53.0357 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 638 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 14.79 Book value per share(2)................................... 643.83 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 50.34 Book value per share...................................... 671.53 </TABLE> - --------------- (1) Based on 8,424 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 8,424 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 639 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 9,233 $ 8,998 $ 9,014 Net income.................................................. 435 251 125 Per common share Net Income (loss)(1)...................................... 51.64 29.76 14.79 Dividends................................................. 10.00 15.00 15.00 Book value(2)............................................. 629.28 644.04 643.83 Total assets................................................ 6,181 6,158 10,215 Shareholders' equity........................................ 5,301 5,425 5,424 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $6,008 $5,909 Income from operations...................................... 96 228 </TABLE> - --------------- (1) Based on 8,424 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 8,424 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 640 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. In fiscal year 1997 other income (expense), net decreased due to increased interest income resulting from additional debt incurred to purchase stock in related Belk companies. Projected cash flow is not expected to be sufficient to fully service the Company's existing debt. The Company intends to rely on affiliated entities to fund any principle repayment shortfalls. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Walnut Square in Dalton, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Kerr group office in Norcross, Georgia. Facilities. The Company leases its store building, which contains approximately 73,000 square feet of floor area. The current term of the lease expires in 2000. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Sears, Penney and Proffitt's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 641 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)........................................... 5,677 67.4% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(b)(d)(e).............................................. 4,477 53.1% H. W. McKay Belk (Director and Executive Officer) (a)(b)(d)(e).............................................. 4,473 53.1% John R. Belk (Director and Executive Officer) (a)(b)(d)(e).............................................. 4,313 51.2% Henderson Belk (Director) (c)............................... 24 * Sarah Belk Gambrell (c)..................................... 796 9.4% Sarah Gambrell Knight....................................... 432 5.1% Leroy Robinson (Director) (a)(b)............................ 640 7.6% Katherine McKay Belk (a)(b)................................. 640 7.6% Katherine Belk Morris (a)(b)................................ 892 10.6% Robert K. Kerr, Jr. (Director and Executive Officer)........ 8 * Gallant-Belk Company........................................ 640 7.6% Belk of Toccoa, Ga., Inc.................................... 632 7.5% Belk Enterprises, Inc....................................... 640 7.6% Belk of Waycross, Ga., Inc.................................. 767 9.1% J.V. Properties............................................. 800 9.5% Thomas M. Belk (Trustee U/A) dated September 15, 1993....... 584 6.9% All Directors and Executive Officers as a group (7 persons).................................................. 6,167 73.2% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Sarah Gambrell Knight -- 810 Colville Road, Charlotte, N.C. 28207; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071; Gallant-Belk Company, Belk of Toccoa, Ga., Inc., Belk Enterprises, Inc., Belk of Waycross, Ga., Inc. and J.V. Properties --2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 56 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (b) Includes 584 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. 20 <PAGE> 642 (c) Includes 24 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power for the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 640 shares held by Belk Enterprises, Inc., 640 shares held by Gallant-Belk Company, 53 shares held by Belk of Athens, Ga., Inc., 632 shares held by Belk of Toccoa, Ga., Inc., 767 shares held by Belk of Waycross, Ga., Inc., and 53 shares held by Belk of Thomaston, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (e) Includes 800 shares of J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. 21 <PAGE> 643 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 644 BELK OF DALTON, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 58,288 $ 95,540 Accounts receivable, net.................................. 1,241,870 1,429,401 Merchandise inventory..................................... 1,857,966 2,064,454 Receivable from affiliates, net........................... 477,752 -- Refundable income taxes................................... 20,715 -- Deferred income taxes..................................... 17,990 -- Other..................................................... 91,178 84,445 ---------- ----------- Total current assets........................................ 3,765,759 3,673,840 Loans receivable from affiliates, net....................... 1,000,000 1,000,000 Investments................................................. 257,611 4,609,006 Property, plant and equipment, net.......................... 1,068,574 868,563 Other noncurrent assets..................................... 65,677 63,279 ---------- ----------- $6,157,621 $10,214,688 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 520,162 $ 491,465 Payables to affiliates, net............................... -- 4,057,714 Deferred income taxes..................................... -- 8,726 Accrued income taxes...................................... 4,230 30,399 ---------- ----------- Total current liabilities................................... 524,392 4,588,304 Deferred income taxes....................................... 76,061 58,613 Other noncurrent liabilities................................ 131,784 144,131 ---------- ----------- Total liabilities........................................... 732,237 4,791,048 Shareholders' equity: Common stock.............................................. 842,400 842,400 Additional paid in capital................................ 2,066 2,066 Retained earnings......................................... 4,580,918 4,579,174 ---------- ----------- Total shareholders' equity.................................. 5,425,384 5,423,640 ---------- ----------- $6,157,621 $10,214,688 ========== =========== </TABLE> F-2 <PAGE> 645 BELK OF DALTON, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $9,233,342 $8,997,581 $9,013,744 Operating costs and expenses............................... 8,587,024 8,681,780 8,666,767 ---------- ---------- ---------- Income from operations..................................... 646,318 315,801 346,977 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 50,497 67,986 (172,207) Dividend income.......................................... 2,996 4,410 4,968 Gain (loss) on disposal of property, plant and equipment............................................. (21) -- -- Miscellaneous, net....................................... (7,958) (552) (2,189) ---------- ---------- ---------- Total other expense, net................................... 45,514 71,844 (169,428) ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 691,832 387,645 177,549 Income tax expense (benefit)............................... 256,792 136,951 52,933 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 435,040 250,694 124,616 ---------- ---------- ---------- Net earnings............................................... 435,040 250,694 124,616 Retained earnings at beginning of period................... 4,105,784 4,456,584 4,580,918 Dividends paid............................................. (84,240) (126,360) (126,360) ---------- ---------- ---------- Retained earnings at end of period......................... $4,456,584 $4,580,918 $4,579,174 ========== ========== ========== </TABLE> F-3 <PAGE> 646 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 647 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 648 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 649 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 650 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 651 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 652 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 653 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 654 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $9,013,744 $124,616 $349,756 $603,831 $5,423,640 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- -------- ---------- Adjusted Shareholders' Statement............... $9,013,744 124,616 349,756 603,831 5,423,640 ========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ -- -- -- Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- -------- -------- -------- Total non-operating items...................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. (3,487) (4,968) (4,967) Adjustment for ownership in other Belk entities................................... (4,609,006) -------- -------- -------- ---------- Per Model...................................... $121,129 $344,788 $598,863 $ 814,634 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (95,538) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... -- Loans receivable from affiliates, net...... (1,000,000) Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ 4,057,714 Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ 2,962,176 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $2,962,176 ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 655 SUPPLEMENT NO. 13 <PAGE> 656 BELK OF DALTON, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 13 <PAGE> 657 BELK-MATTHEWS COMPANY OF DUBLIN, GEORGIA , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Matthews Company of Dublin, Georgia (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 59.8273 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 290,242 shares of New Belk Class A Common Stock which will represent approximately 0.4837% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 658 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 659 BELK-MATTHEWS COMPANY OF DUBLIN, GEORGIA ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-MATTHEWS COMPANY OF DUBLIN, GEORGIA: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Matthews Company of Dublin, Georgia (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 59.8273 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 660 BELK-MATTHEWS COMPANY OF DUBLIN, GEORGIA SUPPLEMENT NO. 14 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 14 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-MATTHEWS COMPANY OF DUBLIN, GEORGIA (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 16 SELECTED HISTORICAL FINANCIAL INFORMATION................... 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 18 BUSINESS OF THE COMPANY..................................... 18 SECURITY OWNERSHIP OF THE COMPANY........................... 19 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets............................... F-2 Unaudited Statements of Earnings and Retained Earnings.............................................. F-3 Condensed Notes to Unaudited Historical Financial Statements............................................ F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 661 THE COMPANY The Company was incorporated as a Georgia corporation in 1946. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive, 59.8273 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 662 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 5,760 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A 3 <PAGE> 663 Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to 4 <PAGE> 664 be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. 5 <PAGE> 665 Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company, to be kept in the Minute Books of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be 6 <PAGE> 666 filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or 7 <PAGE> 667 shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with 8 <PAGE> 668 regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his 9 <PAGE> 669 activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the 10 <PAGE> 670 corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. 11 <PAGE> 671 Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be 12 <PAGE> 672 accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. 13 <PAGE> 673 DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $7,723,648 $7,723,648 0.6 $ (978,965) $5,613,153 EBITDA............... 808,322 808,322 7 (978,965) 6,637,219 EBIT................. 502,369 502,369 10 (978,965) 6,002,655 Net Income........... 366,057 366,057 15 -- 5,490,855 Book Equity.......... 5,184,698 5,184,375 1 -- 5,184,375 </TABLE> 14 <PAGE> 674 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ---------- Total $ N/A ========== Relative Operating Value of Company $6,637,219 Relative Operating Value of Other Companies Owned by Company + -- ---------- Total Relative Value of Company = $6,637,219 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk of La Grange, Ga., Inc. 15.7753% X $6,637,219 = $1,047,042 ---------- Total $1,047,042 ========== Total Relative Value of Company $6,637,219 Total Relative Value of Company Owned by Other Belk Companies - 1,047,042 ---------- Net Relative Value of Company = $5,590,177 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $5,590,177 / $1,155,623,145 = .4837% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.4837% X 60,000,007) / 4,851.33334 = 59.8273 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 15 <PAGE> 675 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 63.55 Book value per share(2)................................... 900.12 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 56.79 Book value per share...................................... 757.53 </TABLE> - --------------- (1) Based on 5,760 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 5,760 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 16 <PAGE> 676 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 7,480 $ 7,620 $ 7,724 Net income.................................................. 186 186 366 Per common share Net income (loss)(1)...................................... 32.32 32.29 63.55 Dividends................................................. 10.00 12.50 12.50 Book value(2)............................................. 829.28 849.07 900.12 Total assets................................................ 5,425 5,575 6,009 Shareholders' equity........................................ 4,777 4,891 5,185 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $5,298 $5,415 Income from operations...................................... 185 90 </TABLE> - --------------- (1) Based on 5,760 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 5,760 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 17 <PAGE> 677 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Dublin Mall in Dublin, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Matthews group office in Macon, Georgia. Facilities. The Company leases its store building, which contains approximately 61,000 square feet of floor area. The current term of the lease expires in 2007. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Penney and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 18 <PAGE> 678 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)..... 1,553.33 27.0% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(c).................................................... 1,242.67 21.6% H. W. McKay Belk (Director and Executive Officer) (a)(c).... 1,242.67 21.6% John R. Belk (Director and Executive Officer) (a)(c)........ 1,242.67 21.6% Henderson Belk (Director) (b)............................... 80.00 1.4% B. Frank Matthews, II (Director and Executive Officer) (d)(e)(f)................................................. 970.67 16.9% William M. Matthews, IV (Director and Executive Officer).... 960.00 16.7% Katherine McKay Belk (a).................................... 334.00 5.8% Katherine Belk Morris (a)................................... 334.00 5.8% Sarah Belk Gambrell (b)..................................... 653.97 11.4% Elizabeth Matthews Welton (d)(e)............................ 720.00 12.5% Belk of LaGrange, Ga., Inc.................................. 908.67 15.7% Robinson Investment Company................................. 400 6.9% Elizabeth Matthews Welton Trust, Elizabeth Matthews Welton, Trustee U/A dated August 2, 1995.......................... 320 5.6% All Directors and Executive Officers as a group (7 persons).................................................. 3,784.00 65.7% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell 300 Cherokee Road, Charlotte, N.C. 28207; B. Frank Matthews, II and Elizabeth Matthews Welton -- 2240 Remount Road, Gastonia, N.C. 28054; William M. Matthews, V -- 3661 Eisenhower Parkway, Macon, Ga. 31206; Belk of LaGrange, Ga., Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Robinson Investment Company -- P.O. Box 2088, Matthews-Belk Group Office, Gastonia, N.C. 28053; Elizabeth Matthews Welton Trust, Elizabeth Matthews Welton, Trustee, u/a dated August 2, 1995 c/o B. Frank Matthews, II -- P.O. Box 2088, Matthews Belk Group Office, Gastonia, N.C. 28053. All shares of common stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 234 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 80 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 19 <PAGE> 679 (c) Includes 908.67 shares held by Belk of LaGrange, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of such corporation, under authority given by the directors of such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Includes 320 shares held by Elizabeth Matthews Welton Trust, Elizabeth Matthews Welton, Trustee u/a dated August 2, 1995. The Trustee has voting and investment power with respect to such shares. (e) Includes 400 shares held by Robinson Investment Company. B. Frank Matthews, II and Elizabeth M. Welton share the voting and investment power with respect to such shares. (f) Includes 160 shares held by First Union National Bank of N.C., B. Frank Matthews, II and Annabelle Z. Royster, Co -- Trustees under the Will of J. H. Matthews, Jr. The names Trustees have voting and investment power with respect to such shares. 20 <PAGE> 680 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 681 BELK-MATTHEWS COMPANY OF DUBLIN, GEORGIA UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 118,299 $ 152,171 Accounts receivable, net.................................. 1,139,276 1,318,591 Merchandise inventory..................................... 1,534,865 1,761,179 Receivable from affiliates, net........................... 472,120 822,709 Deferred income taxes..................................... 25,390 11,887 Other..................................................... 992,995 940,014 ---------- ---------- Total current assets........................................ 4,282,945 5,006,551 Loans receivable from affiliates, net....................... 4,274 4,274 Investments................................................. 324 324 Property, plant and equipment, net.......................... 1,259,295 974,492 Other noncurrent assets..................................... 28,289 23,516 ---------- ---------- $5,575,127 $6,009,157 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 467,707 $ 481,264 Accrued income taxes...................................... 9,683 145,648 ---------- ---------- Total current liabilities................................... 477,390 626,912 Deferred income taxes....................................... 180,595 165,980 Other noncurrent liabilities................................ 26,500 31,567 ---------- ---------- Total liabilities........................................... 684,485 824,459 Shareholders' equity: Common stock.............................................. 576,000 576,000 Retained earnings......................................... 4,314,642 4,608,698 ---------- ---------- Total shareholders' equity.................................. 4,890,642 5,184,698 ---------- ---------- $5,575,127 $6,009,157 ========== ========== </TABLE> F-2 <PAGE> 682 BELK-MATTHEWS COMPANY OF DUBLIN, GEORGIA UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $7,480,265 $7,619,720 $7,723,647 Operating costs and expenses............................... 7,160,784 7,394,690 7,354,535 ---------- ---------- ---------- Income from operations..................................... 319,481 225,030 369,112 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 51,439 79,502 84,104 Gain (loss) on disposal of property, plant and equipment............................................. 48 (785) -- Miscellaneous, net....................................... (2,347) 3,962 133,256 ---------- ---------- ---------- Total other expense, net................................... 49,140 82,679 217,360 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 368,621 307,709 586,472 Income tax expense (benefit)............................... 182,481 121,736 220,416 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 186,140 185,973 366,056 ---------- ---------- ---------- Net earnings............................................... 186,140 185,973 366,056 Retained earnings at beginning of period................... 4,072,129 4,200,669 4,314,642 Dividends paid............................................. (57,600) (72,000) (72,000) ---------- ---------- ---------- Retained earnings at end of period......................... $4,200,669 $4,314,642 $4,608,698 ========== ========== ========== </TABLE> F-3 <PAGE> 683 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 684 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 685 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 686 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 687 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 688 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 689 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 690 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 691 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statement of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $7,723,648 $366,057 $502,369 $808,322 $5,184,698 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- -------- ---------- Adjusted Shareholders' Statement............... $7,723,648 366,057 502,369 808,322 5,184,698 ========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ -- -- -- Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- -------- -------- -------- Total non-operating items...................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (323) -------- -------- -------- ---------- Per Model...................................... $366,057 $502,369 $808,322 $5,184,375 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (152,173) Negative cash balances reclassified to accounts payable......................... 191 Receivables from affiliates, net........... (822,709) Loans receivable from affiliates, net...... (4,274) Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ -- Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ (978,965) Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ (978,965) ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 692 SUPPLEMENT NO. 14 <PAGE> 693 BELK-MATTHEWS COMPANY OF DUBLIN, GEORGIA THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 14 <PAGE> 694 BELK OF HARTWELL, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Hartwell, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 27.4919 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 48,716 shares of New Belk Class A Common Stock which will represent approximately 0.0812% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 695 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 696 BELK OF HARTWELL, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF HARTWELL, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Hartwell, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 27.4919 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 697 BELK OF HARTWELL, GA., INC. SUPPLEMENT NO. 15 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 15 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF HARTWELL, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FORM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 16 SELECTED HISTORICAL FINANCIAL INFORMATION................... 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 18 BUSINESS OF THE COMPANY..................................... 18 SECURITY OWNERSHIP OF THE COMPANY........................... 19 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 698 THE COMPANY The Company was incorporated as a Georgia corporation in 1933 as Gallant-Belk Company. The Company changed its name to Belk of Hartwell, Ga., Inc. on July 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 27.4919 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 699 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 2,400 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one 3 <PAGE> 700 vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. 4 <PAGE> 701 Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or 5 <PAGE> 702 more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation to or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, 6 <PAGE> 703 setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless 7 <PAGE> 704 otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 705 Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he 9 <PAGE> 706 was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 707 circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 708 The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. 12 <PAGE> 709 A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts 13 <PAGE> 710 awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales.................... $1,829,467 $1,829,467 0.6 $ (128,033) $1,225,713 EBITDA....................... 124,518 123,878 7 (128,033) 995,179 EBIT......................... 72,493 71,853 10 (128,033) 846,563 Net Income................... 53,465 52,924 15 -- 793,860 Book Equity.................. 1,089,699 1,081,427 1 -- 1,081,427 </TABLE> 14 <PAGE> 711 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk of Elberton, Ga., Inc. 2.7128% X $ 1,662,395 = $ 45,098 ----------- Total $ 45,098 =========== Relative Operating Value of Company $ 1,225,713 Relative Operating Value of Other Companies Owned by Company + 45,098 ----------- Total Relative Value of Company = $ 1,270,811 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Gallant-Belk Company 6.1667% X $ 1,270,811 = $ 78,367 Belk Brothers Company 15.1667% X 1,270,811 = 192,740 Belk of Dalton, Ga., Inc. 4.8333% X 1,270,811 = 61,422 ----------- Total $ 332,529 =========== Total Relative Value of Company $ 1,270,811 Total Relative Value of Company Owned by Other Belk Companies - 332,529 ----------- Net Relative Value of Company = $ 938,282 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 938,281 / $1,155,623,145 = .0812% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.0812% X 60,000,007) / 1,772 = 27.4919 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 15 <PAGE> 712 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 22.28 Book value per share(2)................................... 454.04 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 26.09 Book value per share...................................... 348.10 </TABLE> - --------------- (1) Based on 2,400 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 2,400 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 16 <PAGE> 713 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 1,051 $ 1,305 $ 1,829 Net income.................................................. 39 19 53 Per common share Net income (loss)(1)...................................... 16.30 8.10 22.28 Dividends................................................. 10.00 10.00 10.00 Book value(2)............................................. 443.67 441.76 454.04 Total assets................................................ 1,115 1,167 1,335 Shareholders' equity........................................ 1,065 1,060 1,090 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $1,263 $1,340 Income from operations...................................... 47 91 </TABLE> - --------------- (1) Based on 2,400 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 2,400 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 17 <PAGE> 714 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. The revenue increase in fiscal year 1997 and the increase for the nine months ended November 1, 1997 is attributable to the relocation of the store in December of fiscal year 1996 increasing square footage by 21%. Other income (expense), net was composed primarily of interest income in fiscal year 1995. The income was eliminated when the excess cash was used to fund capital expenditures related to the store relocation. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Adams Square in Hartwell, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Long group office in Anderson, South Carolina. Facilities. The Company leases its store building, which contains approximately 21,000 square feet of floor area. The current term of the lease expires in 2003. The Company believes the building is adequate to meet its current needs. Competitor. The Company's principal competitor in the market is Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 18 <PAGE> 715 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 1,580.00 65.8% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(c)(d)................................................. 1,157.33 48.2% H. W. McKay Belk (Director and Executive Officer) (a)(c)(d)................................................. 1,161.33 48.4% John R. Belk (Director and Executive Officer) (a)(c)(d)..... 1,157.33 48.0% Henderson Belk (Director) (b)............................... 8.00 * Sarah Belk Gambrell (b)..................................... 344.00 14.3% Sally Gambrell Knight....................................... 148 6.2% Leroy Robinson (Director) (a)............................... 471.33 19.6% B. Neal Long (Director and Executive Officer)............... 0 * Katherine McKay Belk (a).................................... 471.33 19.6% Katherine Belk Morris (a)................................... 533.33 22.2% Thomas M. Belk, Trustee U/A dated September 15, 1993........ 471.33 19.6% J.V. Properties............................................. 364 15.2% Gallant-Belk Company........................................ 148 6.2% All Directors and Executive Officers as a group (7 persons).................................................. 2,094.00 87.3% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Sarah Gambrell Knight -- 810 Colville Road, Charlotte, N.C. 28207; B. Neal Long -- 3101 N. Main Street, Anderson, S.C. 29621. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 471.33 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 8 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Includes 148 shares held by Gallant-Belk Company and 116 shares held by Belk of Dalton, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. 19 <PAGE> 716 (d) Includes 364 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. 20 <PAGE> 717 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 718 BELK OF HARTWELL, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 49,617 $ 22,769 Accounts receivable, net.................................. 200,999 280,091 Merchandise inventory..................................... 279,385 376,051 Receivable from affiliates, net........................... 2,375 -- Refundable income taxes................................... 1,864 -- Deferred income taxes..................................... 1,881 -- Other..................................................... 24,744 17,445 ---------- ---------- Total current assets........................................ 560,865 696,356 Loans receivable from affiliates, net....................... 136,102 106,102 Investments................................................. 8,272 8,272 Property, plant and equipment, net.......................... 451,857 514,365 Deferred income taxes....................................... -- 721 Other noncurrent assets..................................... 9,783 8,868 ---------- ---------- $1,166,879 $1,334,684 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 94,405 $ 105,291 Payables to affiliates, net............................... -- 838 Deferred income taxes..................................... -- 3,460 Accrued income taxes...................................... -- 8,668 ---------- ---------- Total current liabilities................................... 94,405 118,257 Deferred income taxes....................................... 2,325 -- Other noncurrent liabilities................................ 9,915 11,343 ---------- ---------- Total liabilities........................................... 106,645 129,600 Deferred income............................................. -- 115,385 Shareholders' equity: Common stock.............................................. 240,000 240,000 Retained earnings......................................... 820,234 849,699 ---------- ---------- Total shareholders' equity.................................. 1,060,234 1,089,699 ---------- ---------- $1,166,879 $1,334,684 ========== ========== </TABLE> F-2 <PAGE> 719 BELK OF HARTWELL, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ---------------- ---------------- ---------------- <S> <C> <C> <C> Net sales................................................... 1,051,109 1,305,000 1,829,467 Operating costs and expenses................................ 1,019,968 1,287,331 1,758,118 --------- --------- --------- Income from operations...................................... 31,141 17,669 71,349 --------- --------- --------- Other income (expense): Interest, net............................................. 18,578 27,155 (9,287) Dividend income........................................... 240 880 640 Gain (loss) on disposal of property, plant and equipment.............................................. -- (22,869) -- Miscellaneous, net........................................ (292) 663 503 --------- --------- --------- Total other expense, net.................................... 18,526 5,829 (8,144) --------- --------- --------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities............. 49,667 23,498 63,205 Income tax expense (benefit)................................ 10,557 4,061 9,740 --------- --------- --------- Earnings from continuing operations before equity in earnings of unconsolidated entities....................... 39,110 19,437 53,465 --------- --------- --------- Net earnings................................................ 39,110 19,437 53,465 Retained earnings at beginning of period.................... 809,687 824,797 820,234 Dividends paid.............................................. (24,000) (24,000) (24,000) --------- --------- --------- Retained earnings at end of period.......................... 824,797 820,234 849,699 ========= ========= ========= </TABLE> F-3 <PAGE> 720 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 721 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 722 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 723 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 724 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 725 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 726 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 727 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 728 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 1,829,467 $ 53,465 $ 72,493 $124,518 $1,089,699 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $ 1,829,467 53,465 72,493 124,518 1,089,699 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... -- -- -- Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. (541) (641) (641) Adjustment for ownership in other Belk entities.................................. (8,272) -------- -------- -------- ---------- Per Model..................................... $ 52,924 $ 71,853 $123,878 $1,081,427 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (22,769) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... -- Loans receivable from affiliates, net..... (106,102) Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... 838 Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (128,033) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $ (128,033) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 729 SUPPLEMENT NO. 15 <PAGE> 730 BELK OF HARTWELL, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 15 <PAGE> 731 BELK OF LAGRANGE, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of LaGrange, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $1.00 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 0.3854 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 712,984 shares of New Belk Class A Common Stock which will represent approximately 1.1883% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 732 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 733 BELK OF LAGRANGE, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF LAGRANGE, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of LaGrange, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $1.00 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 0.3854 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 734 BELK OF LAGRANGE, GA., INC. SUPPLEMENT NO. 16 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 16 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF LAGRANGE, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 735 THE COMPANY The Company was incorporated as a Georgia corporation in 1935 as Gallant-Belk Company. The Company changed its name to Belk of LaGrange, Ga., Inc. on July 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $1.00 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 0.3854 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 736 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization--Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 3,500,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one 3 <PAGE> 737 vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. 4 <PAGE> 738 Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or 5 <PAGE> 739 more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, 6 <PAGE> 740 setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of Directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless 7 <PAGE> 741 otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 742 Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he 9 <PAGE> 743 was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 744 circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (a) by persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 745 The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. 12 <PAGE> 746 A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13, and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts 13 <PAGE> 747 awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales.................. $37,503,222 $37,503,222 0.6 $7,376,891 $15,125,042 EBITDA..................... 3,283,672 3,168,892 7 7,376,891 14,805,353 EBIT....................... 2,246,996 2,132,216 10 7,376,891 13,945,269 Net Income................. 1,099,531 1,025,390 15 -- 15,380,850 Book Equity................ 18,081,727 9,064,074 1 -- 9,064,074 </TABLE> 14 <PAGE> 748 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Gallant-Belk Company 5.6306% X $31,711,816 = $ 1,785,565 Belk of Athens, Ga., Inc. 9.1895% X 14,289,892 = 1,313,170 Belk's Department Store of Cartersville, Georgia, Incorporated 11.2167% X 3,810,247 = 427,384 Belks of Cornelia, Ga., Inc. 3.6169% X 4,947,119 = 178,932 Belks of Covington, Ga., Inc. 20.2976% X 4,579,688 = 929,567 Belks-Matthews Company of Dublin, Georgia 15.7753% X 6,637,219 = 1,047,041 Belk Department Store of Greenwood, S.C., Inc. 6.5851% X 8,472,623 = 557,931 Belk-Matthews Company, Macon, Georgia, Inc. 15.0400% X 14,496,059 = 2,180,207 Belk of Thomaston, Georgia, Inc. .00027 X 30,307,653 = 818 Belk of Toccoa, Ga., Inc. 9.0148 X 4,349,964 = 392,141 Belk-Matthews, Vidalia, Georgia, Inc. 10.0160 X 4,962,587 = 497,053 Belk of Waycross, Ga., Inc. 1.3163 X 43,824,848 = 576,866 ----------- Total $ 9,886,675 =========== Relative Operating Value of Company $15,380,850 Relative Operating Value of Other Companies Owned by Company + 9,886,675 ----------- Total Relative Value of Company = $25,267,525 =========== </TABLE> 15 <PAGE> 749 The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk of Athens, Ga., Inc. 6.3399% X $25,267,525 = $ 1,601,936 Belk Brothers Company 16.1591% X 25,267,525 = 4,083,005 Belk Enterprises, Inc. 16.2920% X 25,267,525 = 4,116,585 Belk of Dalton, Ga., Inc. 1.6387% X 25,267,525 = 414,059 Belk of Seneca, SC., Inc. .0011% X 25,267,525 = 278 Belk of Thomaston, Ga., Inc. 5.2214% X 25,267,525 = 1,319,318 ----------- Total $11,535,181 =========== Total Relative Value of Company $25,267,525 Total Relative Value of Company Owned by Other Belk Companies - 11,535,181 ----------- Net Relative Value of Company = $13,732,344 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $13,732,344 / $1,155,623,145 = 1.1883% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (1.1883% X 60,000,007) / 1,849,811 = .3854 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 750 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 0.32 Book value per share(2)................................... 5.31 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 0.37 Book value per share...................................... 4.88 </TABLE> - --------------- (1) Based on 3,403,654 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 3,403,654 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 751 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $34,875 $36,355 $37,503 Net income.................................................. 1,688 1,266 1,100 Per common share Income..................................... 0.50 0.37 0.32 Net income (loss)(1)...................................... -- -- -- Dividends................................................. 0.02 0.04 0.05 Book value(2)............................................. 4.71 5.04 5.31 Total assets................................................ 19,609 20,132 30,360 Shareholders' equity........................................ 16,022 17,152 18,082 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $25,479 $25,981 Income from operations...................................... 806 1,731 </TABLE> - --------------- (1) Based on 3,403,654 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 3,403,654 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 752 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates four retail department stores in the following locations in Georgia: Lakeland Plaza Shopping Center in Cumming; Banks Crossing in Fayetteville; Lakeshore Plaza in Gainesville; and West Georgia Commons in LaGrange. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus, with the exception that the Company's store in Gainesville, Georgia operates from two locations in Lakeshore Plaza. One location features various departments within the store, while other departments are located in a separate location. The stores are managed out of the Kerr group office in Norcross, Georgia. Facilities. The Company operates four stores, of which three are leased under long-term leases and one is owned by the Company. The leases have termination dates ranging from 1999 through 2007, and for the lease terminating in 1999, the Company has options to extend the lease through 2019. The floor space of the leased stores ranges from 41,000 to 140,000 square feet. The store owned by the Company in Cumming contains approximately 51,000 square feet of floor area. The Company believes the facilities are adequate to meet its current needs, with the exception of the store building at Banks Crossing in Fayetteville which the Company is considering expanding. Competition. Specific competitors in the Company's markets include Wal-Mart, Penney, Sears and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 753 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)(g)(h).................................. 2,243,235 65.9% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(d)(e)(g)(h)........................................... 1,833,997 53.9% H. W. McKay Belk (Director and Executive Officer) (b)(d)(e)(g)(h)........................................... 1,833,997 53.9% John R. Belk (Director and Executive Officer) (b)(d)(e)(g)(h)........................................... 1,835,194 53.9% Henderson Belk (Director) (e)(f)............................ 197,359 5.8% Sarah Belk Gambrell (e)(f).................................. 397,974 11.7% Sarah Gambrell Knight....................................... 275,620 8.1% Leroy Robinson (Director) (b)(d)............................ 204,800 6.0% Katherine McKay Belk (b)(d)................................. 240,727 7.1% Katherine Belk Morris (b)(d)................................ 280,154 8.2% Robert K. Kerr, Jr. (Director and Executive Officer)........ 0 * Thomas M. Belk, Trustee U/A dated September 15, 1993........ 187,375 5.5% Belk of Athens, Ga., Inc.................................... 215,787 6.3% Belk Enterprises, Inc....................................... 554,522 16.3% Belk of Thomaston, Ga., Inc................................. 177,719 5.2% J.V. Properties............................................. 555,000 16.2% All Directors and Executive Officers as a group (7 persons).................................................. 2,470,494 72.6% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Sarah Gambrell Knight -- 810 Colville Road, Charlotte, N.C. 28207; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071; Belk of Athens, Ga., Inc., Belk Enterprises, Inc., Belk of Thomaston, Ga., Inc. and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 27,546 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 17,425 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M .Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Includes 1,198 shares held by Claudia W. Belk, Tr. U/A f/b/o Mary Claudia Belk. Claudia W. Belk, Trustee, is John M. Belk's wife. 20 <PAGE> 754 (d) Includes 187,375 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (e) Includes 191,850 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (f) Includes 5,509 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (g) Includes 215,787 shares held by Belk of Athens, Ga., Inc., 55,777 shares held by Belk of Dalton, Ga., Inc., 38 shares held by Belk of Seneca, S.C., Inc., 554,522 shares held by Belk Enterprises, Inc. and 177,719 shares held by Belk of Thomaston, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under the authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (h) Includes 550,000 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. 21 <PAGE> 755 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-3 </TABLE> F-1 <PAGE> 756 BELK OF LAGRANGE, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 253,060 $ 401,998 Accounts receivable, net.................................. 4,159,156 5,157,243 Merchandise inventory..................................... 6,685,259 7,419,034 Receivable from affiliates, net........................... 889,301 -- Refundable income taxes................................... 62,338 -- Deferred income taxes..................................... 61,711 -- Other..................................................... 363,370 340,792 ----------- ----------- Total current assets........................................ 12,474,195 13,319,067 Loans receivable from affiliates, net....................... -- 1,411,340 Investments................................................. 172,377 9,017,652 Property, plant and equipment, net.......................... 6,881,117 6,071,231 Other noncurrent assets..................................... 604,355 540,553 ----------- ----------- $20,132,044 $30,359,843 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 2,115,827 $ 2,000,245 Payables to affiliates, net............................... -- 9,190,069 Deferred income taxes..................................... -- 26,853 Accrued income taxes...................................... 14,514 249,896 ----------- ----------- Total current liabilities................................... 2,130,341 11,467,063 Deferred income taxes....................................... 208,624 231,055 Loans payable to affiliates, net............................ 88,660 -- Other noncurrent liabilities................................ 552,040 579,998 ----------- ----------- Total liabilities........................................... 2,979,665 12,278,116 Shareholders' equity: Common stock.............................................. 3,403,654 3,403,654 Retained earnings......................................... 13,748,725 14,678,073 ----------- ----------- Total shareholders' equity.................................. 17,152,379 18,081,727 ----------- ----------- $20,132,044 $30,359,843 =========== =========== </TABLE> F-2 <PAGE> 757 BELK OF LAGRANGE, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $34,874,800 $36,651,805 $37,852,279 Less: Leased Sales...................................... -- 296,791 349,056 ----------- ----------- ----------- Net sales............................................... 34,874,800 36,355,014 37,503,223 Operating costs and expenses............................ 32,062,978 34,252,957 35,374,485 ----------- ----------- ----------- Income from operations.................................. 2,811,822 2,102,057 2,128,738 ----------- ----------- ----------- Other income (expense): Interest, net......................................... (138,818) (153,809) (544,778) Dividend income....................................... 25,547 19,748 11,639 Gain (loss) on disposal of property, plant and equipment.......................................... -- (147) -- Gain (loss) on sale of securities..................... 59,814 -- -- Miscellaneous, net.................................... (40,636) (625) 3,480 ----------- ----------- ----------- Total other expense, net................................ (94,093) (134,833) (529,659) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 2,717,729 1,967,224 1,599,079 Income tax expense (benefit)............................ 1,029,506 701,113 566,170 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 1,688,223 1,266,111 1,032,909 Equity in earnings (loss) of unconsolidated entity, net of tax................................................ -- -- 66,622 ----------- ----------- ----------- Net earnings............................................ 1,688,223 1,266,111 1,099,531 Retained earnings at beginning of period................ 10,998,610 12,618,760 13,748,725 Dividends paid.......................................... (68,073) (136,146) (170,183) ----------- ----------- ----------- Retained earnings at end of period...................... $12,618,760 $13,748,725 $14,678,073 =========== =========== =========== </TABLE> F-3 <PAGE> 758 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 759 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 760 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 761 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 762 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 763 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 764 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 765 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 766 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ---------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................. $37,503,222 $1,099,530 $2,246,995 $3,283,671 $18,081,726 Adjustments to eliminate less than wholly-owned subsidiaries................. -- -- -- -- -- ----------- ---------- ---------- ---------- ----------- Adjusted Shareholders' Statement............ $37,503,222 1,099,530 2,246,995 3,283,671 18,081,726 =========== ---------- ---------- ---------- ----------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............. -- -- -- Gain/loss on sale of securities........... -- -- -- Impairment loss........................... -- -- -- Equity in earnings of unconsolidated subsidiaries............................ (66,622) (103,140) (103,140) Gain/loss on discontinued operations...... -- -- -- Adjustment to tax expense................. -- -- -- -- ---------- ---------- ---------- Total non-operating items................... (66,622) (103,140) (103,140) ---------- ---------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities..................... (7,518) (11,639) (11,639) Adjustment for ownership in other Belk entities................................ (9,017,652) ---------- ---------- ---------- ----------- Per Model................................... $1,025,390 $2,132,216 $3,168,892 $ 9,064,074 ========== ========== ========== =========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................. $ (401,998) Negative cash balances reclassified to accounts payable...................... 160 Receivables from affiliates, net........ -- Loans receivable from affiliates, net... (1,411,340) Liabilities Notes payable........................... -- Current installments of long-term debt.................................. -- Current portion of obligations under capital leases........................ -- Payables to affiliates, net............. 9,190,069 Long-term debt, excluding current installments.......................... -- Obligations under capital leases, excluding current portion............. -- Loans payable to affiliates, net........ -- ----------- Net debt (cash)............................. 7,376,891 Adjustments to eliminate less than wholly-owned subsidiaries................. -- ----------- Per Model................................... $ 7,376,891 =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 767 SUPPLEMENT NO. 16 <PAGE> 768 BELK OF LAGRANGE, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 16 <PAGE> 769 BELK OF LAWRENCEVILLE, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Lawrenceville, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 32.2086 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 145,067 shares of New Belk Class A Common Stock which will represent approximately 0.2418% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 770 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 771 BELK OF LAWRENCEVILLE, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF LAWRENCEVILLE, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Lawrenceville, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 32.2086 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 772 BELK OF LAWRENCEVILLE, GA., INC. SUPPLEMENT NO. 17 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 17 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF LAWRENCEVILLE, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 16 SELECTED HISTORICAL FINANCIAL INFORMATION................... 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 18 BUSINESS OF THE COMPANY..................................... 18 SECURITY OWNERSHIP OF THE COMPANY........................... 19 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 773 THE COMPANY The Company was incorporated as a Georgia corporation in 1945 as Belk-Gallant Company of Lawrenceville, Georgia. The Company changed its name to Belk of Lawrenceville, Ga., Inc. on July 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement") by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 32.2086 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 774 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 9,712 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer 3 <PAGE> 775 restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 776 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or 5 <PAGE> 777 alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action 6 <PAGE> 778 which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless 7 <PAGE> 779 otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 780 Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he 9 <PAGE> 781 was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 782 circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 783 The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. 12 <PAGE> 784 A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts 13 <PAGE> 785 awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $8,157,700 $8,157,700 0.6 $(1,130,204) $6,024,824 EBITDA............... 626,162 626,162 7 (1,130,204) 5,513,338 EBIT................. 407,109 407,109 10 (1,130,204) 5,201,294 Net Income........... 277,437 277,437 15 -- 4,161,555 Book Equity.......... 3,674,135 3,673,874 1 -- 3,673,874 </TABLE> 14 <PAGE> 786 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ---------- Total $ N/A ========== Relative Operating Value of Company $6,024,824 Relative Operating Value of Other Companies Owned by Company + -- ---------- Total Relative Value of Company = $6,024,824 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Gallant-Belk Company 11.5321% X $ 6,024,824 = $ 694,789 Belk of Athens, Ga., Inc. .5766 X 6,024,824 = 34,739 Belk Brothers Company 15.8155 X 6,024,824 = 952,856 Belk Enterprises, Inc. 21.5815 X 6,024,824 = 1,300,248 Belk of Dalton, Ga., Inc. 4.1186 X 6,024,824 = 248,138 ---------- Total $3,230,770 ========== Total Relative Value of Company $6,024,824 Total Relative Value of Company Owned by Other Belk Companies - 3,230,770 ---------- Net Relative Value of Company = $2,794,055 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 2,794,055 / $1,155,623,145 = .2418% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.2418% X 60,000,007) / 4,504 = 32.2086 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 15 <PAGE> 787 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 28.57 Book value per share(2)................................... 378.31 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 30.57 Book value per share...................................... 407.82 </TABLE> - --------------- (1) Based on 9,712 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 9,712 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 16 <PAGE> 788 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 8,238 $ 8,020 $ 8,158 Net income.................................................. 132 125 277 Per common share Net income (loss)(1)...................................... 13.57 12.83 28.57 Dividends................................................. -- 5.00 5.00 Book value(2)............................................. 346.91 354.74 378.31 Total assets................................................ 4,061 3,976 4,281 Shareholders' equity........................................ 3,369 3,445 3,674 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $5,542 $5,824 Income from operations...................................... 64 557 </TABLE> - --------------- (1) Based on 9,712 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 9,712 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 17 <PAGE> 789 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in River Exchange Shopping Center in Lawrenceville, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Kerr group office in Norcross, Georgia. Facilities. The Company leases its store building, which contains approximately 63,000 square feet of floor area. The current term of the lease expires in 2011. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Target and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 18 <PAGE> 790 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 7,626 78.5% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(c)(d)................................................. 6,248 64.3% H. W. McKay Belk (Director and Executive Officer) (a)(c)(d)................................................. 6,259 64.4% John R. Belk (Director and Executive Officer) (a)(c)(d)..... 6,306 64.9% Henderson Belk (Director) (b)............................... 56 * Sarah Belk Gambrell (b)..................................... 1,618 16.7% Leroy Robinson (a).......................................... 954 9.8% Katherine McKay Belk (a)(h)................................. 985 10.1% Katherine Belk Morris (a)................................... 1,042 10.7% Robert K. Kerr, Jr. (Director).............................. 26 * Thomas M. Belk, Trustee U/A dated January 15, 1993.......... 954 9.8% Gallant-Belk Company........................................ 1,120 11.5% Belk Enterprises, Inc....................................... 2,096 21.6% J.V. Properties............................................. 1,536 15.8% All Directors and Executive Officers as a group (7 persons).................................................. 7,979 82.2% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071; Gallant-Belk Company, Belk Enterprises, Inc., J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 954 shares held Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 56 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Includes 1,120 shares held by Gallant-Belk Company, 56 shares held by Belk of Athens, Ga., Inc., 400 shares held by Belk of Dalton, Ga., Inc. and 2,096 shares held by Belk Enterprises, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of 19 <PAGE> 791 directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Includes 1,536 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (e) Includes 19 shares held by Thomas M. Belk, Jr., as custodian for his minor children. (f) Includes 9 shares held by H. W. McKay Belk as custodian for his minor children. (g) Includes 10 shares held by John R. Belk as custodian for his minor children. (h) Includes 31 shares held by Katherine M. Belk as custodian for her minor grandchildren. 20 <PAGE> 792 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 </TABLE> F-1 <PAGE> 793 BELK OF LAWRENCEVILLE, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3 FEBRUARY 1 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 53,965 $ 82,947 Accounts receivable, net.................................. 1,085,625 1,309,279 Merchandise inventory..................................... 1,514,785 1,565,056 Receivable from affiliates, net........................... 762,163 977,256 Refundable income taxes................................... 3,433 -- Deferred income taxes..................................... 19,329 -- Other..................................................... 79,946 76,722 ---------- ---------- Total current assets........................................ 3,519,246 4,011,260 Loans receivable from affiliates, net....................... 70,000 70,000 Investments................................................. 261 261 Property, plant and equipment, net.......................... 352,317 149,790 Deferred income taxes....................................... 2,923 24,079 Other noncurrent assets..................................... 30,875 25,771 ---------- ---------- $3,975,622 $4,281,161 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 435,150 $ 462,458 Deferred income taxes..................................... -- 931 Accrued income taxes...................................... 49,387 97,549 ---------- ---------- Total current liabilities................................... 484,537 560,938 Other noncurrent liabilities................................ 45,827 46,088 ---------- ---------- Total liabilities........................................... 530,364 607,026 Shareholders' equity: Common stock.............................................. 971,200 971,200 Additional paid in capital................................ 607 607 Retained earnings......................................... 2,473,451 2,702,328 ---------- ---------- Total shareholders' equity.................................. 3,445,258 3,674,135 ---------- ---------- $3,975,622 $4,281,161 ========== ========== </TABLE> F-2 <PAGE> 794 BELK OF LAWRENCEVILLE, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $8,238,018 $8,020,046 $8,157,701 Operating costs and expenses............................... 7,954,044 7,851,803 7,749,789 ---------- ---------- ---------- Income from operations..................................... 283,974 168,243 407,912 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (9,117) 24,651 26,772 Gain (loss) on disposal of property, plant and equipment............................................. -- 3,200 -- Miscellaneous, net....................................... (9,793) 33 (802) ---------- ---------- ---------- Total other expense, net................................... (18,910) 27,884 25,970 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 265,064 196,127 433,882 Income tax expense (benefit)............................... 133,282 71,493 156,445 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 131,782 124,634 277,437 ---------- ---------- ---------- Net earnings............................................... 131,782 124,634 277,437 Retained earnings at beginning of period................... 2,265,595 2,397,377 2,473,451 Dividends paid............................................. -- (48,560) (48,560) ---------- ---------- ---------- Retained earnings at end of period......................... $2,397,377 $2,473,451 $2,702,328 ========== ========== ========== </TABLE> F-3 <PAGE> 795 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 796 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 797 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 798 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 799 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 800 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 801 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 802 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 803 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 8,157,700 $277,437 $407,109 $626,162 $ 3,674,135 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ----------- Adjusted Shareholders' Statement.............. $ 8,157,700 277,437 407,109 626,162 3,674,135 =========== -------- -------- -------- ----------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... -- -- -- Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. -- -- -- Adjustment for ownership in other Belk entities.................................. (261) -------- -------- -------- ----------- Per Model..................................... $277,437 $407,109 $626,162 $ 3,673,874 ======== ======== ======== =========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (82,948) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (977,256) Loans receivable from affiliates, net..... (70,000) Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (1,130,204) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $(1,130,204) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 804 SUPPLEMENT NO. 17 <PAGE> 805 BELK OF LAWRENCEVILLE, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 17 <PAGE> 806 BELK-MATTHEWS COMPANY OF MACON, GEORGIA , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Matthews Company of Macon, Georgia (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 100.3514 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 602,911 shares of New Belk Class A Common Stock which will represent approximately 1.0049% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 807 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 808 BELK-MATTHEWS COMPANY OF MACON, GEORGIA ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-MATTHEWS COMPANY OF MACON, GEORGIA: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Matthews Company of Macon, Georgia (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 100.3514 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 809 BELK-MATTHEWS COMPANY OF MACON, GEORGIA SUPPLEMENT NO. 18 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 18 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-MATTHEWS COMPANY OF MACON, GEORGIA (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 16 SELECTED HISTORICAL FINANCIAL INFORMATION................... 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 18 BUSINESS OF THE COMPANY..................................... 18 SECURITY OWNERSHIP OF THE COMPANY........................... 19 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 810 THE COMPANY The Company was incorporated as a Georgia corporation in 1942. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 100.3514 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 811 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to share with New Belk the risk associated with the increased competition from other major retail department stores that have moved into the Company's market in the past year. Even though the Company has recently completed a major renovation of its store, the new competition has created a highly competitive situation. The Merger would enable the Company to rely upon New Belk to help finance the Company's business, including such renovation. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 14,530 shares of Common Stock. 3 <PAGE> 812 Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the 4 <PAGE> 813 holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are 5 <PAGE> 814 entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of 6 <PAGE> 815 votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. 7 <PAGE> 816 Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares 8 <PAGE> 817 entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving 9 <PAGE> 818 action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the 10 <PAGE> 819 effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (a) by persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any 11 <PAGE> 820 security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment 12 <PAGE> 821 (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. 13 <PAGE> 822 If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period")multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales.................. $32,745,226 $32,745,226 0.6 $9,852,780 $ 9,794,355 EBITDA..................... 3,949,840 2,560,697 7 9,852,780 8,072,099 EBIT....................... 2,830,612 1,441,469 10 9,852,780 4,561,910 Net Income................. 1,577,982 708,585 15 -- 10,628,775 Book Equity................ 14,557,476 13,068,547 1 -- 13,068,547 </TABLE> 14 <PAGE> 823 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Tags Stores, LLC 9.4420% X $15,118,749 = $ 1,427,512 ----------- Total $ 1,427,512 =========== Relative Operating Value of Company $13,068,547 Relative Operating Value of Other Companies Owned by Company + 1,427,512 ----------- Total Relative Value of Company = $14,496,059 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. 2.400% X $14,496,059 = $ 347,906 Matthews-Belk Company .9467% X 14,496,059 = 137,234 Belk of LaGrange, Ga., Inc. 15.0400% X 14,496,059 = 2,180,207 Belk of Monroe, Ga., Inc. .8667% X 14,496,059 = 125,637 Belk of Thomaston, Ga., Inc. .6400% X 14,496,059 = 92,775 ----------- Total $ 2,883,758 =========== Total Relative Value of Company $14,496,059 Total Relative Value of Company Owned by Other Belk Companies - 2,883,759 ----------- Net Relative Value of Company = $11,612,300 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $11,612,300 / $1,155,623,145 = 1.0049% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (1.0049% X 60,000,007) / 6,008 = 100.3514 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 15 <PAGE> 824 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $210.40 Book value per share(2)................................... 1,941.00 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 95.25 Book value per share...................................... 1,270.64 </TABLE> - --------------- (1) Based on 7,500 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 7,500 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 16 <PAGE> 825 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 33,306 $ 32,711 $ 32,745 Net income.................................................. 1,028 613 1,578 Per common share Net income (loss)(1)...................................... 137.03 81.67 210.40 Dividends................................................. 7.50 10.00 7.50 Book value(2)............................................. 1,712.98 1,823.24 1,941.00 Total assets................................................ 20,867 22,598 28,843 Shareholders' equity........................................ 12,847 13,674 14,557 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $20,540 $20,832 Income (loss) from operations............................... 500 (1,033) </TABLE> - --------------- (1) Based on 7,500 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 7,500 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 17 <PAGE> 826 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Other income (expense), net improved to income of 3.4% of sales in fiscal year 1997 compared to an expense of 0.7% in fiscal year 1996 as a result of a $1.4 million gain on the sale of securities. In fiscal year 1997, the Macon Outlet Center was contributed to TAGS Stores, LLC in exchange for a partnership interest. Comparable store sales increased due to a strong sales performance at both the Macon, Georgia location that was remodeled in the fall of fiscal year 1997 and the Warner Robins, Georgia location that was relocated in the fall of fiscal year 1995. BUSINESS OF THE COMPANY General. The Company operates two retail department stores in the following locations in Georgia: Galleria Mall in Centerville and Macon Mall in Macon. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The stores are managed out of the Matthews group office in Macon, Georgia. The Company also operates a marking and receiving center in the Galleria Mall location that receives inventory, marks it for shipping to other Belk stores served by the Matthews group and ships the inventory to such stores. Furthermore, the Matthews group office operates out of the Macon Mall location. The Matthews group office provides buying, advertising, accounting, personnel and other services to stores in the Matthews group area. Facilities. The Company owns the store property and building, which contains approximately 160,000 square feet of floor area, at the Macon Mall location, together with an adjacent parking area. The Company leases its store building at Galleria Mall in Centerville, which contains approximately 80,000 square feet of floor area. The current term of the lease expires in 2014. The Macon Mall store completed a major remodeling in 1996, and the Company believes that its buildings are adequate to meet its current needs. Competition. Specific competitors in the Company's markets include Penney, Sears, Dillard, Macy's and Parisian. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 18 <PAGE> 827 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)..... 2,297 30.6% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(c).................................................... 1,784 23.8% H. W. McKay Belk (Director and Executive Officer) (b)(c).... 1,784 23.8% John R. Belk (Director and Executive Officer) (b)(c)........ 1,804 24.1% Henderson Belk (Director)................................... 0 * Sarah Belk Gambrell......................................... 957.0 12.8% Leroy Robinson (Director) (b)............................... 532.0 7.1% B. Frank Matthews, II (Director and Executive Officer) (e)(f)(g)................................................. 825.0 11.0% William M. Matthews, IV (Director and Executive Officer).... 1,015.5 13.5% Katherine McKay Belk (b).................................... 532.0 7.1% Katherine Belk Morris (b)................................... 532.0 7.1% Elizabeth M. Welton (d)(e).................................. 384.0 5.1% Larry Williams (Executive Officer).......................... 0 * Thomas M. Belk, Trustee U/A date September 15, 1993......... 532 7.1% Belk of LaGrange, Ga., Inc.................................. 1,128 15.0% All Directors and Executive Officers as a group (8 persons).................................................. 4,324.5 57.7% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; B. Frank Matthews, II and Elizabeth Matthews Welton -- 2240 Remount Road, Gastonia, N.C. 28054; William M. Matthews, V and Larry Williams -- 3661 Eisenhower Parkway, Macon, Ga. 31206; Belk of LaGrange, Ga, Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 240 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 532 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 65 shares held by Belk Brothers of Monroe, North Carolina, Incorporated, 1,128 shares held by Belk of LaGrange, Ga., Inc., 180 shares held by Belk Enterprises, Inc., 48 shares held by Belk of Thomaston, Ga., Inc. and 71 shares held by Matthews-Belk Company, which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in 19 <PAGE> 828 March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Includes 347 shares held by Elizabeth Matthews Welton Trust, Elizabeth Matthews Welton, Trustee u/a dtd August 2, 1995. The Trustee has voting and investment power with respect to such shares. (e) Includes 37 shares held by Robinson Investment Company. B. Frank Matthews, II and Elizabeth M. Welton share the voting and investment power with respect to such shares. (f) Includes 360 shares held by First Union National Bank of N.C., B. Frank Matthews, II and Annabelle Z. Royster, Co-Trustees under the will of J.H. Matthews, Jr. The named Trustees having voting and investment power with respect to such shares. (g) Includes 53 shares held by B. Frank Matthew, II for his wife, Betty Choate Matthews. 20 <PAGE> 829 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 830 BELK-MATTHEWS COMPANY OF MACON, GEORGIA UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 3,245,514 $ 703,227 Accounts receivable, net.................................. 5,575,080 6,167,158 Merchandise inventory..................................... 6,709,129 7,439,620 Refundable income taxes................................... 74,869 68,120 Deferred income taxes..................................... 96,286 72,287 Other..................................................... 393,750 409,105 ----------- ----------- Total current assets........................................ 16,094,628 14,859,517 Loans receivable from affiliates, net....................... 11,545 11,545 Investments................................................. 1,056,385 1,488,928 Property, plant and equipment, net.......................... 5,294,752 12,360,087 Other noncurrent assets..................................... 140,620 122,430 ----------- ----------- $22,597,930 $28,842,507 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable............................................. $ -- $ 8,187,379 Current installments of long-term debt.................... 750,000 -- Accounts payable and accrued expenses..................... 1,756,834 2,174,743 Payables to affiliates, net............................... 2,105,060 2,380,175 Accrued income taxes...................................... -- 83,923 ----------- ----------- Total current liabilities................................... 4,611,894 12,826,220 Deferred income taxes....................................... 553,139 352,703 Long-term debt, excluding current installments.............. 3,000,000 -- Other noncurrent liabilities................................ 335,446 364,840 ----------- ----------- Total liabilities........................................... 8,500,479 13,543,763 Deferred income............................................. 423,121 741,269 Shareholders' equity: Common stock.............................................. 750,000 750,000 Additional paid in capital................................ 3,802 3,802 Net unrealized gain (loss) on investments, net of income taxes.................................................. 638,586 -- Retained earnings......................................... 12,281,942 13,803,673 ----------- ----------- Total shareholders' equity.................................. 13,674,330 14,557,475 ----------- ----------- $22,597,930 $28,842,507 =========== =========== </TABLE> F-2 <PAGE> 831 BELK-MATTHEWS COMPANY OF MACON, GEORGIA UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $33,744,348 $33,122,857 $33,077,203 Less: Leased Sales...................................... 438,376 411,598 331,978 ----------- ----------- ----------- Net sales............................................... 33,305,972 32,711,259 32,745,225 Operating costs and expenses............................ 31,331,880 31,550,086 31,323,288 ----------- ----------- ----------- Income from operations.................................. 1,974,092 1,161,173 1,421,937 ----------- ----------- ----------- Other income (expense): Interest, net......................................... (295,380) (227,569) (309,278) Dividend income....................................... 16,743 19,533 26,704 Gain (loss) on disposal of property, plant and equipment.......................................... (104,413) (5,188) (13,912) Gain (loss) on sale of securities..................... -- -- 1,403,055 Miscellaneous, net.................................... 13,217 (3,063) (7,172) ----------- ----------- ----------- Total other expense, net................................ (369,833) (216,287) 1,099,397 ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 1,604,259 944,886 2,521,334 Income tax expense (benefit)............................ 576,520 332,330 943,353 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 1,027,739 612,556 1,577,981 ----------- ----------- ----------- Net earnings............................................ 1,027,739 612,556 1,577,981 Retained earnings at beginning of period................ 10,772,897 11,744,386 12,281,942 Dividends paid.......................................... (56,250) (75,000) (56,250) ----------- ----------- ----------- Retained earnings at end of period...................... $11,744,386 $12,281,942 $13,803,673 =========== =========== =========== </TABLE> F-3 <PAGE> 832 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 833 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 834 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 835 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 836 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 837 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 838 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 839 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 840 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ----------- ----------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................ $32,745,226 $1,577,982 $ 2,830,612 $ 3,949,840 $14,557,476 Adjustments to eliminate less than wholly-owned subsidiaries................ -- -- -- -- -- ----------- ---------- ----------- ----------- ----------- Adjusted Shareholders' Statement........... $32,745,226 1,577,982 2,830,612 3,949,840 14,557,476 =========== ---------- ----------- ----------- ----------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............ 8,707 13,912 13,912 Gain/loss on sale of securities.......... (878,104) (1,403,055) (1,403,055) Impairment loss.......................... -- -- -- Equity in earnings of unconsolidated subsidiaries........................... -- -- -- Gain/loss on discontinued operations..... -- -- -- Adjustment to tax expense................ -- -- -- -- ---------- ----------- ----------- Total non-operating items.................. (869,397) (1,389,143) (1,389,143) ---------- ----------- ----------- Other Adjustments: Adjustment for dividends received from other Belk entities.................... -- -- -- Adjustment for ownership in other Belk entities............................... (1,488,928) ---------- ----------- ----------- ----------- Per Model.................................. $ 708,585 $ 1,441,469 $ 2,560,697 $13,068,548 ========== =========== =========== =========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................ $ (703,229) Negative cash balances reclassified to accounts payable..................... -- Receivables from affiliates, net....... -- Loans receivable from affiliates, net.................................. (11,545) Liabilities Notes payable.......................... 8,187,379 Current installments of long-term debt................................. -- Current portion of obligations under capital leases....................... -- Payables to affiliates, net............ 2,380,175 Long-term debt, excluding current installments......................... -- Obligations under capital leases, excluding current portion............ -- Loans payable to affiliates, net....... -- ----------- Net debt (cash)............................ 9,852,780 Adjustments to eliminate less than wholly-owned subsidiaries................ -- ----------- Per Model.................................. $ 9,852,780 =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 841 SUPPLEMENT NO. 18 <PAGE> 842 BELK-MATTHEWS COMPANY OF MACON, GEORGIA THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 18 <PAGE> 843 BELK-MATTHEWS COMPANY OF MILLEDGEVILLE, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Matthews Company of Milledgeville, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 37.1292 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 266,291 shares of New Belk Class A Common Stock which will represent approximately 0.4438% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 844 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 845 BELK-MATTHEWS COMPANY OF MILLEDGEVILLE, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-MATTHEWS COMPANY OF MILLEDGEVILLE, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Matthews Company of Milledgeville, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 37.1292 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 846 BELK-MATTHEWS COMPANY OF MILLEDGEVILLE, GA., INC. SUPPLEMENT NO. 19 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 19 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-MATTHEWS COMPANY OF MILLEDGEVILLE, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 16 SELECTED HISTORICAL FINANCIAL INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 17 BUSINESS OF THE COMPANY..................................... 18 SECURITY OWNERSHIP OF THE COMPANY........................... 18 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 847 THE COMPANY The Company was incorporated as a Georgia corporation in 1951. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 37.1292 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 848 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' right of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 17,280 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and 3 <PAGE> 849 from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the 4 <PAGE> 850 amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. 5 <PAGE> 851 Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board shall have concurrent power, by vote of a majority of all of the directors, to make, alter, amend and rescind the Company Bylaws. The bylaws enacted by the Shareholders may be affected by action of the Company Board and vice versa; provided, however, the Company Board may not re-enact a bylaw which the Shareholders have repealed or altered, nor may it repeal a bylaw enacted by the Shareholders which limits the powers of the Company Board or enhances or protects the right of Shareholders, without the consent of the Shareholders. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action 6 <PAGE> 852 which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless 7 <PAGE> 853 otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or additional bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 854 Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he 9 <PAGE> 855 was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 856 circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (a) by persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 857 The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. 12 <PAGE> 858 A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts 13 <PAGE> 859 awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period")multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales................... $5,289,804 $5,289,804 0.6 $(2,241,083) $5,414,966 EBITDA...................... 429,244 429,244 7 (2,241,083) 5,245,791 EBIT........................ 393,758 393,758 10 (2,241,083) 6,178,663 Net Income.................. 309,962 309,962 15 -- 4,649,430 Book Equity................. 3,976,932 3,976,526 1 -- 3,976,526 </TABLE> 14 <PAGE> 860 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ----------- Total $ N/A =========== Relative Operating Value of Company $ 6,178,663 Relative Operating Value of Other Companies Owned by Company + -- ----------- Total Relative Value of Company = $ 6,178,663 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. .5093% X $ 6,178,663 = $ 31,468 Belk of Dalton, Ga., Inc. 16.4815% X 6,178,663 = 1,018,336 ----------- Total $ 1,049,804 =========== Total Relative Value of Company $ 6,178,663 Total Relative Value of Company Owned by Other Belk Companies - 1,049,804 ----------- Net Relative Value of Company = $ 5,128,859 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 5,128,859 / $1,155,623,145 = .4438% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.4438% X 60,000,007) / 7,172 = 37.1292 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 15 <PAGE> 861 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 35.88 Book value per share(2)................................... 460.29 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 35.24 Book value per share...................................... 470.13 </TABLE> - --------------- (1) Based on 8,640 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 8,640 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 16 <PAGE> 862 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 5,599 $ 5,391 $ 5,290 Net income.................................................. 186 189 310 Per common share Net income (loss)(1)...................................... 21.57 21.92 35.88 Dividends................................................. 7.50 10.00 12.50 Book value(2)............................................. 425.00 436.92 460.29 Total assets................................................ 3,986 4,162 4,430 Shareholders' equity........................................ 3,672 3,775 3,977 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $3,696 $3,440 Income from operations...................................... 207 106 </TABLE> - --------------- (1) Based on 8,640 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 8,640 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 17 <PAGE> 863 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Hatcher Square in Milledgeville, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Matthews group office in Macon, Georgia. Facilities. The Company leases its store building, which contains approximately 48,000 square feet of floor area. The current term of the lease expires in 2007. The store was expanded by 4,000 square feet and remodeled in 1997. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Penney and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 18 <PAGE> 864 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)........................................... 2,656 30.7% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(c)(e)................................................. 1,776 20.6% H. W. McKay Belk (Director and Executive Officer) (b)(c)(e)................................................. 1,776 20.6% John R. Belk (Director and Executive Officer) (b)(c)(e)..... 1,776 20.6% Henderson Belk (Director) (d)............................... 160 1.9% Sarah Belk Gambrell (d)..................................... 1,552 18.0% Leroy Robinson (Director) (b)(c)............................ 100 1.2% B. Frank Matthews, II (Director and Executive Officer) (f)(g)(h)(i).............................................. 1,156 13.4% William M. Matthews, IV (Director and Executive Officer).... 1,200 13.9% Elizabeth M. Welton (g)(h).................................. 528 6.1% Montgomery Investment Company............................... 696 8.1% Belk of Dalton, Ga., Inc.................................... 1,424 16.5% All Directors and Executive Officers as a group (8 persons).................................................. 6,036 69.9% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; B. Frank Matthews, II and Elizabeth Matthews Welton -- 2240 Remount Road, Gastonia, N.C. 28054; William M. Matthews, V -- 3661 Eisenhower Parkway, Macon, Ga. 31206; Montgomery Investment Company and Belk of Dalton, Ga., Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 696 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 44 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and LeRoy Robinson. (c) Includes 56 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (d) Includes 160 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 19 <PAGE> 865 (e) Includes 1,424 shares held by Belk of Dalton, Ga., Inc. and 44 shares held by Belk Enterprises, which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (f) Includes 188 shares held by B. Frank Matthews, II's wife, Betty Choate Matthews. (g) Includes 320 shares held by Elizabeth Matthews Welton Trust, Elizabeth Matthews Welton, Trustee U/A dated August 2, 1995. The Trustee has voting and investment power with respect to such shares. (h) Includes 208 shares held by Robinson Investment Company. B. Frank Matthews, II and Elizabeth M. Welton share the voting and investment power with respect to such shares. (i) Includes 240 shares held by First Union National Bank of N.C., B. Frank Matthews, II and Annabelle Z. Royster, Co-Trustees under the will of J.H. Matthews, Jr. The named Trustees have voting and investment power with respect to such shares. 20 <PAGE> 866 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 867 BELK-MATTHEWS COMPANY OF MILLEDGEVILLE, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 73,453 $ 115,863 Accounts receivable, net.................................. 808,555 938,912 Merchandise inventory..................................... 1,078,360 1,105,190 Receivable from affiliates, net........................... 2,021,921 2,121,103 Deferred income taxes..................................... 16,355 12,208 Other..................................................... 44,828 41,337 ---------- ---------- Total current assets........................................ 4,043,472 4,334,613 Loans receivable from affiliates, net....................... 4,117 4,117 Investments................................................. 406 406 Property, plant and equipment, net.......................... 92,924 72,957 Other noncurrent assets..................................... 21,458 18,374 ---------- ---------- $4,162,377 $4,430,467 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 333,874 $ 324,875 Accrued income taxes...................................... 3,897 87,330 ---------- ---------- Total current liabilities................................... 337,771 412,205 Deferred income taxes....................................... 26,582 14,975 Other noncurrent liabilities................................ 23,054 26,355 ---------- ---------- Total liabilities........................................... 387,407 453,535 Shareholders' equity: Common stock.............................................. 864,000 864,000 Retained earnings......................................... 2,910,970 3,112,932 ---------- ---------- Total shareholders' equity.................................. 3,774,970 3,976,932 ---------- ---------- $4,162,377 $4,430,467 ========== ========== </TABLE> F-2 <PAGE> 868 BELK-MATTHEWS COMPANY OF MILLEDGEVILLE, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $5,599,363 $5,391,160 $5,289,804 Operating costs and expenses............................... 5,377,616 5,157,060 4,902,261 ---------- ---------- ---------- Income from operations..................................... 221,747 234,100 387,543 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 77,973 55,159 103,577 Gain (loss) on disposal of property, plant and equipment............................................. -- (219) -- Miscellaneous, net....................................... (1,804) 6,710 6,215 ---------- ---------- ---------- Total other expense, net................................... 76,169 61,650 109,792 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 297,916 295,750 497,335 Income tax expense (benefit)............................... 111,575 106,343 187,373 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 186,341 189,407 309,962 ---------- ---------- ---------- Net earnings............................................... 186,341 189,407 309,962 Retained earnings at beginning of period................... 2,686,422 2,807,963 2,910,970 Dividends paid............................................. (64,800) (86,400) (108,000) ---------- ---------- ---------- Retained earnings at end of period......................... $2,807,963 $2,910,970 $3,112,932 ========== ========== ========== </TABLE> F-3 <PAGE> 869 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 870 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 871 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 872 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 873 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 874 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 875 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 876 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 877 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 5,289,805 $309,962 $393,758 $429,244 $3,976,932 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $ 5,289,805 309,962 393,758 429,244 3,976,932 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... -- -- -- Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. -- -- -- Adjustment for ownership in other Belk entities.................................. (406) -------- -------- -------- ---------- Per Model..................................... $309,962 $393,758 $429,244 $3,976,526 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (115,863) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (2,121,103) Loans receivable from affiliates, net..... (4,117) Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (2,241,083) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $(2,241,083) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 878 SUPPLEMENT NO. 19 <PAGE> 879 BELK-MATTHEWS COMPANY OF MILLEDGEVILLE, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 19 <PAGE> 880 BELK OF MONROE, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Monroe, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 16.8846 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 47,851 shares of New Belk Class A Common Stock which will represent approximately 0.0798% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 881 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 882 BELK OF MONROE, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF MONROE, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Monroe, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 16.8846 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 883 BELK OF MONROE, GA., INC. SUPPLEMENT NO. 20 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 20 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF MONROE, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 884 THE COMPANY The Company was incorporated as a Georgia corporation in 1935 as Gallant-Belk Company, Monroe, Georgia. The Company changed its name to Belk of Monroe, Ga., Inc. on July 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 16.8846 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 885 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see " -- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to share the risks of the Company's uncertain prospects in its market. The Company's store is located in a smaller market that has recently experienced relatively little growth. The management of the Company has considered from time to time whether to recommend the relocation of the Company's store to another market with better growth prospects. The Merger would enable the Company to rely on New Belk to provide the capital necessary to relocate the Company's store. If the Company does not participate in the Reorganization and is required to finance the relocation of its store on its own, there can be no assurance that the Company would be able to obtain the financing necessary to so relocate its store. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full 3 <PAGE> 886 text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 6,032 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In 4 <PAGE> 887 the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. 5 <PAGE> 888 According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to 6 <PAGE> 889 vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to 7 <PAGE> 890 time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of 8 <PAGE> 891 shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such 9 <PAGE> 892 individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage 10 <PAGE> 893 of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. 11 <PAGE> 894 With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The 12 <PAGE> 895 rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. 13 <PAGE> 896 In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 897 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $1,350,020 $1,350,020 0.6 $(1,151,626) $1,961,637 EBITDA............... 82,179 82,179 7 (1,151,626) 1,726,878 EBIT................. 75,841 75,841 10 (1,151,626) 1,910,035 Net Income........... 95,424 95,424 15 -- 1,431,360 Book Equity.......... 1,566,057 1,565,769 1 -- 1,565,769 </TABLE> 15 <PAGE> 898 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ----------- Total $ N/A =========== Relative Operating Value of Company $ 1,961,637 Relative Operating Value of Other Companies Owned by Company + -- ----------- Total Relative Value of Company = $ 1,961,637 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Gallant-Belk Company 9.2838% X $ 1,961,637 = $ 182,114 Belk Brothers Company 18.2361% X 1,961,637 = 357,726 Belk Enterprises, Inc. 17.2414% X 1,961,637 = 338,214 Belk of Dalton, Ga., Inc. 7.4934 X 1,961,637 = 146,993 Belk of Thomaston, Ga., Inc. .63% X 1,961,637 = 12,358 Belk of Athens, Ga., Inc. .1326% X 1,961,637 = 2,601 ----------- Total $ 1,040,007 =========== Total Relative Value of Company $ 1,961,637 Total Relative Value of Company Owned by Other Belk Companies - 1,040,007 ----------- Net Relative Value of Company = $ 921,630 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 921,630 / $1,155,623,145 = .0798% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.0798% X 60,000,007) / 2,834 = 16.8846 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 899 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 15.82 Book value per share(2)................................... 259.62 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 16.03 Book value per share...................................... 213.79 </TABLE> - --------------- (1) Based on 6,032 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 6,032 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 900 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $1,289 $1,295 $1,350 Net income.................................................. 87 82 95 Per common share Net income (loss)(1)...................................... 14.48 13.56 15.82 Dividends................................................. 7.50 7.50 7.50 Book value(2)............................................. 245.24 251.31 259.62 Total assets................................................ 1,624 1,635 1,711 Shareholders' equity........................................ 1,479 1,516 1,566 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $934 $862 Income from operations...................................... 32 51 </TABLE> - --------------- (1) Based on 6,032 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 6,032 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 901 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Monroe Plaza Shopping Center in Monroe, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Kerr group office in Norcross, Georgia. Facilities. The Company leases its store building on a month-to-month basis. The building contains approximately 26,000 square feet of floor area. The current term of the lease expires in 1998 and there are no options to renew the lease. The Company is evaluating the long-term prospects for its business in Monroe. Should the Company elect to continue operations, management believes that options to renew the lease at market rates would be available. Competition. The Company's principal competitor in the market is Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 902 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 4,166 69.1% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(c)(d)................................................. 3,550 58.9% H. W. McKay Belk (Director and Executive Officer) (a)(c)(d)................................................. 3,550 58.9% John R. Belk (Director and Executive Officer) (a)(c)(d)..... 3,550 58.9% Henderson Belk (Director) (b)............................... 360 6.0% Sarah Belk Gambrell (b)..................................... 488 8.1% Sarah Gambrell Knight....................................... 544 9.0% Leroy Robinson (Director) (a)............................... 208 3.4% Katherine Belk Morris (a)................................... 360 6.0% Robert K. Kerr, Jr. (Director and Executive Officer)........ 0 * Gallant-Belk Company........................................ 560 9.3% Belk of Dalton, Ga., Inc. .................................. 452 7.5% Belk Enterprises, Inc. ..................................... 1,040 17.2% J.V. Properties............................................. 1,100 18.2% All Directors and Executive Officers as a group (7 persons).................................................. 4,552 75.5% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Sarah Gambrell Knight- 810 Colville Road, Charlotte, N.C. 28207; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071; Gallant-Belk Company, Belk of Dalton, Ga., Inc., Belk Enterprises, Inc., J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 208 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 360 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Includes 560 shares held by Gallant-Belk Company, 8 shares held by Belk of Athens, Ga., Inc., 452 shares held by Belk of Dalton, Ga., Inc., 1,040 shares held by Belk Enterprises, Inc. and 38 shares held by Belk of Thomaston, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such 20 <PAGE> 903 corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Includes 1,100 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. 21 <PAGE> 904 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 905 BELK OF MONROE, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 8,762 $ 13,072 Accounts receivable, net.................................. 151,792 190,042 Merchandise inventory..................................... 324,283 318,488 Receivable from affiliates, net........................... 151,587 138,553 Refundable income taxes................................... 4,319 11,609 Deferred income taxes..................................... 1,281 -- Other..................................................... 13,258 10,234 ---------- ---------- Total current assets........................................ 655,282 681,998 Loans receivable from affiliates, net....................... 950,000 1,000,000 Investments................................................. 289 289 Property, plant and equipment, net.......................... 20,178 19,976 Other noncurrent assets..................................... 9,598 8,710 ---------- ---------- $1,635,347 $1,710,973 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 103,281 $ 97,940 Deferred income taxes..................................... -- 4,716 Accrued income taxes...................................... -- 27,535 ---------- ---------- Total current liabilities................................... 103,281 130,191 Deferred income taxes....................................... 2,522 1,158 Other noncurrent liabilities................................ 13,671 13,567 ---------- ---------- Total liabilities........................................... 119,474 144,916 Shareholders' equity: Common stock.............................................. 603,200 603,200 Additional paid in capital................................ 550 550 Retained earnings......................................... 912,123 962,307 ---------- ---------- Total shareholders' equity.................................. 1,515,873 1,566,057 ---------- ---------- $1,635,347 $1,710,973 ========== ========== </TABLE> F-2 <PAGE> 906 BELK OF MONROE, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $1,289,373 $1,295,209 $1,350,018 Operating costs and expenses............................... 1,214,939 1,244,360 1,274,722 ---------- ---------- ---------- Income from operations..................................... 74,434 50,849 75,296 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 53,301 62,787 57,465 Miscellaneous, net....................................... (979) 881 545 ---------- ---------- ---------- Total other expense, net................................... 52,322 63,668 58,010 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 126,756 114,517 133,306 Income tax expense (benefit)............................... 39,414 32,693 37,882 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 87,342 81,824 95,424 ---------- ---------- ---------- Net earnings............................................... 87,342 81,824 95,424 Retained earnings at beginning of period................... 833,437 875,539 912,123 Dividends paid............................................. (45,240) (45,240) (45,240) ---------- ---------- ---------- Retained earnings at end of period......................... $ 875,539 $ 912,123 $ 962,307 ========== ========== ========== </TABLE> F-3 <PAGE> 907 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 908 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 909 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially A-1 <PAGE> 910 all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 911 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 912 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 913 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 914 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 915 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement............... $ 1,350,019 $ 95,424 $ 75,841 $ 82,179 $1,566,058 Adjustments to eliminate less than wholly- owned subsidiaries...................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.......... $ 1,350,019 95,424 75,842 82,179 1,566,058 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E........... -- -- -- Gain/loss on sale of securities......... -- -- -- Impairment loss......................... -- -- -- Equity in earnings of unconsolidated subsidiaries.......................... -- -- -- Gain/loss on discontinued operations.... -- -- -- Adjustment to tax expense............... -- -- -- -- -------- -------- -------- Total non-operating items................. -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities................... -- -- -- Adjustment for ownership in other Belk entities.............................. (289) -------- -------- -------- ---------- Per Model................................. $ 95,424 $ 75,841 $ 82,179 $1,565,769 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents............... $ (13,072) Negative cash balances reclassified to accounts payable................... -- Receivables from affiliates, net...... (138,553) Loans receivable from affiliates, net................................ (1,000,000) Liabilities Notes payable......................... -- Current installments of long-term debt............................... -- Current portion of obligations under capital leases..................... -- Payables to affiliates, net........... -- Long-term debt, excluding current installments....................... -- Obligations under capital leases, excluding current portion.......... -- Loans payable to affiliates, net...... -- ----------- Net debt (cash)........................... (1,151,626) Adjustments to eliminate less than wholly- owned subsidiaries...................... -- ----------- Per Model................................. $(1,151,626) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 916 SUPPLEMENT NO. 20 <PAGE> 917 BELK OF MONROE, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 20 <PAGE> 918 BELK OF NEWNAN, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Newnan, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 18.6079 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 49,237 shares of New Belk Class A Common Stock which will represent approximately 0.0821% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 919 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 920 BELK OF NEWNAN, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF NEWNAN, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Newnan, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 18.6079 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 921 BELK OF NEWNAN, GA., INC. SUPPLEMENT NO. 21 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 21 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF NEWNAN, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 922 THE COMPANY The Company was incorporated as a Georgia corporation in 1941 as Belk-Gallant Company of Newnan, Georgia., Inc. The Company changed its name to Belk of Newnan, Ga., Inc., on July 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 18.6079 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 923 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to continue to rely on New Belk to finance the Company's business. The Company has historically relied on loans and on guarantees of its borrowings from other Belk Companies to finance its business. If the Company does not participate in the Reorganization, there is no assurance that New Belk would continue to provide financial support to the Company. Without such loans and guarantees, the Company may not be able to continue to conduct its business as it is currently being conducted. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporate Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per 3 <PAGE> 924 share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 3,684 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each 4 <PAGE> 925 security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at 5 <PAGE> 926 which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special 6 <PAGE> 927 meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. 7 <PAGE> 928 The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. 8 <PAGE> 929 Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and 9 <PAGE> 930 (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in 10 <PAGE> 931 the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes 11 <PAGE> 932 an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. 12 <PAGE> 933 If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in 13 <PAGE> 934 demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 935 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net sales............ $5,884,778 $5,884,778 0.6 $2,210,536 $1,320,331 EBITDA............... 452,269 447,794 7 2,210,536 924,022 EBIT................. 291,274 286,799 10 2,210,536 657,454 Net Income........... 77,179 74,121 15 -- 1,111,815 Book Equity.......... 506,273 505,935 1 -- 505,935 </TABLE> 15 <PAGE> 936 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ----------- Total $ N/A =========== Relative Operating Value of Company $ 1,320,331 Relative Operating Value of Other Companies Owned by Company + -- ----------- Total Relative Value of Company = $ 1,320,331 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Gallant-Belk Company 6.5147% X $ 1,320,331 = $ 86,016 Belk Brothers Company 17.6439% X 1,320,331 = 232,958 Belk of Dalton, Ga., Inc. 3.9631% X 1,320,331 = 52,326 Belk of Thomaston, Ga., Inc. .0543% X 1,320,331 = 717 ----------- Total $ 372,017 =========== Total Relative Value of Company $ 1,320,331 Total Relative Value of Company Owned by Other Belk Companies - 372,017 ----------- Net Relative Value of Company = $ 948,314 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 948,314 / $1,155,623,145 = .0821% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.0821% X 60,000,007) / 2,646 = 18.6079 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 937 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 20.95 Book value per share(2)................................... 137.42 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 17.66 Book value per share...................................... 235.61 </TABLE> - --------------- (1) Based on 3,684 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 3,684 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 938 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 5,930 $ 5,757 $ 5,885 Net income.................................................. 172 46 77 Per common share Net income (loss)(1)...................................... 46.56 12.40 20.95 Dividends................................................. -- -- -- Book value(2)............................................. 104.07 116.48 137.42 Total assets................................................ 3,289 3,235 3,323 Shareholders' equity........................................ 383 429 506 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $4,153 $3,875 Income from operations...................................... 129 123 </TABLE> - --------------- (1) Based on 3,684 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 3,684 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 939 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Net income decreased in fiscal year 1996 due to an increase in advertising, administrative and rent expense. Comparable store sales decreased for the nine months ended November 1, 1997 due to new competition entering the market. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Eastgate Shopping Center in Newnan, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Kerr group office in Norcross, Georgia. Facilities. The Company leases its store building, which contains approximately 51,000 square feet of floor area. The current term of the lease expires in 2005. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Upton's and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 940 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 2,622 71.2% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(c)(d)................................................. 1,758 47.7% H. W. McKay Belk (Director and Executive Officer) (a)(c)(d)................................................. 1,758 47.7% John R. Belk (Director and Executive Officer) (a)(c)(d)..... 1,758 47.7% Henderson Belk (Director) (b)............................... 24 * Sarah Belk Gambrell (b)..................................... 420 11.4% Sarah Gambrell Knight....................................... 400 10.9% Leroy Robinson (Director) (a)............................... 656 17.8% Katherine McKay Belk (a).................................... 656 17.8% Katherine Belk Morris (a)................................... 720 19.5% Gallant-Belk Company........................................ 240 6.5% J.V. Properties............................................. 650 17.6% Robert K. Kerr, Jr. (Director).............................. 0 * All Directors and Executive Officers as a group (7 persons).................................................. 2,814 76.4% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; and Sarah Gambrell Knight -- 801 Colville Road, Charlotte, N.C. 28207; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071; Gallant-Belk Company, J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 656 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr. , H. W. McKay, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 24 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Includes 240 shares held by Gallant-Belk Company, 146 shares held by Belk of Dalton, Ga., Inc. and 2 shares held by Belk of Thomaston, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. 20 <PAGE> 941 (d) Includes 650 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. 21 <PAGE> 942 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 943 BELK OF NEWNAN, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 55,484 $ 62,530 Accounts receivable, net.................................. 675,702 827,876 Merchandise inventory..................................... 1,153,571 1,222,416 Receivable from affiliates, net........................... 197,347 226,934 Refundable income taxes................................... 1,620 1,620 Deferred income taxes..................................... 16,491 -- Other..................................................... 59,737 58,207 ---------- ---------- Total current assets........................................ 2,159,952 2,399,583 Investments................................................. 1,438 1,438 Property, plant and equipment, net.......................... 1,002,538 869,194 Deferred income taxes....................................... 70,707 52,276 Other noncurrent assets..................................... 637 668 ---------- ---------- $3,235,272 $3,323,159 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 278,802 $ 283,962 Deferred income taxes..................................... -- 823 ---------- ---------- Total current liabilities................................... 278,802 284,785 Loans payable to affiliates, net............................ 2,500,000 2,500,000 Other noncurrent liabilities................................ 27,376 32,101 ---------- ---------- Total liabilities........................................... 2,806,178 2,816,886 Shareholders' equity: Common stock.............................................. 368,400 368,400 Retained earnings......................................... 60,694 137,873 ---------- ---------- Total shareholders' equity.................................. 429,094 506,273 ---------- ---------- $3,235,272 $3,323,159 ========== ========== </TABLE> F-2 <PAGE> 944 BELK OF NEWNAN, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $5,929,871 $5,757,105 $5,884,778 Operating costs and expenses............................... 5,580,621 5,496,560 5,598,414 ---------- ---------- ---------- Income from operations..................................... 349,250 260,545 286,364 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (184,484) (190,381) (178,350) Dividend income.......................................... 200 -- -- Gain (loss) on disposal of property, plant and equipment............................................. (527) -- 4,475 Miscellaneous, net....................................... (5,777) (264) 435 ---------- ---------- ---------- Total other expense, net................................... (190,588) (190,645) (173,440) ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 158,662 69,900 112,924 Income tax expense (benefit)............................... (12,866) 24,204 35,745 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 171,528 45,696 77,179 ---------- ---------- ---------- Net earnings............................................... 171,528 45,696 77,179 Retained earnings at beginning of period................... (156,530) 14,998 60,694 ---------- ---------- ---------- Retained earnings at end of period......................... $ 14,998 $ 60,694 $ 137,873 ========== ========== ========== </TABLE> F-3 <PAGE> 945 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 946 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 947 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not A-1 <PAGE> 948 including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 949 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 950 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 951 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 952 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 953 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $5,884,778 $ 77,179 $291,274 $452,269 $506,273 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- -------- -------- Adjusted Shareholders' Statement............... $5,884,778 77,179 291,274 452,269 506,273 ========== -------- -------- -------- -------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ (3,058) (4,475) (4,475) Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- -------- -------- -------- Total non-operating items...................... (3,058) (4,475) (4,475) -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (338) -------- -------- -------- -------- Per Model...................................... $ 74,121 $286,799 $447,794 $505,935 ======== ======== ======== ======== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (62,530) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... (226,934) Loans receivable from affiliates, net...... -- Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ -- Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... 2,500,000 ---------- Net debt (cash)................................ 2,210,536 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $2,210,536 ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 954 SUPPLEMENT NO. 21 <PAGE> 955 BELK OF NEWNAN, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: ,1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 21 <PAGE> 956 BELK-RHODES COMPANY, (ROME, GEORGIA) , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Rhodes Company, (Rome, Georgia) (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 27.9926 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 279,254 shares of New Belk Class A Common Stock which will represent approximately 0.4654% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 957 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 958 BELK-RHODES COMPANY, (ROME, GEORGIA) ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-RHODES COMPANY, (ROME, GEORGIA): Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Rhodes Company, (Rome, Georgia) (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217- 4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 27.9926 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 959 BELK-RHODES COMPANY, (ROME, GEORGIA) SUPPLEMENT NO. 22 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 22 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-RHODES COMPANY, (ROME, GEORGIA) (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 16 SELECTED HISTORICAL FINANCIAL INFORMATION................... 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 18 BUSINESS OF THE COMPANY..................................... 18 SECURITY OWNERSHIP OF THE COMPANY........................... 19 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 960 THE COMPANY The Company was incorporated as a Georgia corporation in 1936. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law,) will be converted, without any action on the part of the Shareholder, into the right to receive 27.9926 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 961 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 4,000,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A 3 <PAGE> 962 Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to 4 <PAGE> 963 be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. 5 <PAGE> 964 Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be 6 <PAGE> 965 filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or 7 <PAGE> 966 shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with 8 <PAGE> 967 regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not 9 <PAGE> 968 indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct 10 <PAGE> 969 or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (a) by persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other 11 <PAGE> 970 books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. 12 <PAGE> 971 Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. 13 <PAGE> 972 DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period")multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the from the Total Relative Value of the Company product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- --------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $8,479,043 $8,479,043 0.6 $(331,307) $5,418,733 EBITDA............... 543,419 515,719 7 (331,307) 3,941,340 EBIT................. 449,317 421,617 10 (331,307) 4,547,477 Net Income........... 257,985 238,957 15 -- 3,584,355 Book Equity.......... 3,292,977 3,249,439 1 -- 3,249,439 </TABLE> 14 <PAGE> 973 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk-Rhodes Company, of Carrollton, Ga. 11.2037% X $10,536,260 = $ 1,180,451 ----------- Total $ 1,180,451 =========== Relative Operating Value of Company $ 5,418,733 Relative Operating Value of Other Companies Owned by Company + 1,180,451 ----------- Total Relative Value of Company = $ 6,599,184 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. .4902% X $ 6,599,184 = $ 32,349 Belk of Dalton, Ga., Inc. 15.6373% X 6,599,184 = 1,031,934 Belk of Thomaston, Ga., Inc. 2.3693% X 6,599,184 = 156,355 ----------- Total $ 1,220,638 =========== Total Relative Value of Company $ 6,599,184 Total Relative Value of Company Owned by Other Belk Companies - 1,220,638 ----------- Net Relative Value of Company = $ 5,378,546 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 5,378,546 / $1,155,623,145 = .4654% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.4654% X 60,000,0007) / 9,976 = 27.9926 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 15 <PAGE> 974 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 21.08 Book value per share(2)................................... 269.03 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 26.57 Book value per share...................................... 354.44 </TABLE> - --------------- (1) Based on 12,240 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 12,240 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 16 <PAGE> 975 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $11,308 $ 9.572 $ 8,479 Net income (loss)........................................... 36 (233) 258 Per common share Net income (loss)(1)...................................... 2.98 (19.00) 21.08 Dividends................................................. 15.00 15.00 10.00 Book value(2)............................................. 291.96 257.96 269.03 Total assets................................................ 6,019 5,345 5,439 Shareholders' equity........................................ 3,574 3,157 3,293 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $5,643 $5,273 Income from operations...................................... 104 219 </TABLE> - --------------- (1) Based on 12,240 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 12,240 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 17 <PAGE> 976 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The information which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Comparable store sales decreased for the nine months ended November 1, 1997 due to increased competition in the market. Income from operations decreased in fiscal year 1996 due to an increase in cost of merchandise resulting from higher mark downs accompanied by increases in selling, general, and administrative expense, as a percent of sales, resulting from the closing of the Rome Outlet Center in fiscal year 1996. Other income, net decreased in fiscal year 1996 partly as a result of a loss on abandonment and sale of fixed assets related to the store closing. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Mt. Berry Square in Rome, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Kerr group office in Norcross, Georgia. Facilities. The Company leases its building, which contains approximately 86,000 square feet of floor area. The current term of the lease expires in 2011. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Sears, Penney and Proffitt's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a materially adverse effect on the Company's business, financial condition or results of operations. 18 <PAGE> 977 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 4,432 36.2% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(b)(d)................................................. 2,792 22.8% H. W. McKay Belk (Director and Executive Officer) (a)(b)(d)................................................. 2,792 22.8% John R. Belk (Director and Executive Officer) (a)(b)(d)..... 2,792 22.8% Henderson Belk (Director) (c)............................... 960 7.8%* Sarah Belk Gambrell (Director) (c).......................... 2,336 19.1% Cecil David Rhodes, Jr. (Director).......................... 880 7.2% C. D. Rhodes, III (Director)................................ 30 * Robert Earl Rhodes (Director) (e)........................... 448 3.7% Cecil D. Rhodes Trust....................................... 1,600 13.1% Ralph A. Pitts (Director)................................... 0 * Robert K. Kerr, Jr. (Executive Officer)..................... 20 * Belk of Dalton, Ga., Inc.................................... 1,914 15.6% All Directors and Executive Officers as a group (9 persons).................................................. 7,958 65.0% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson and Ralph A. Pitts -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071; Cecil David Rhodes, Jr. -- 209 Brentwood Drive, Wilson, N.C. 27893; C. D. Rhodes, III, Darlington School, 1014 Cave Spring Road, Rome, Ga. 30161; Robert Earl Rhodes -- 245 Jackson Street, Denver, Co. 80206-5524; Cecil D. Rhodes Trust -- Ernest J. Rudert & Company, Box 1744, Rome, Ga. 30161; Belk of Dalton, Ga., Inc. -- 2801 West Tyrola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below (a) Includes 120 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (b) Includes 144 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 960 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 19 <PAGE> 978 (d) Includes 1,914 shares held by Belk of Dalton, Ga., Inc., 60 shares held by Belk Enterprises, Inc. and 290 shares held by Belk of Thomaston, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (e) Includes 184 shares held by Robert Earl Rhodes' wife, Sandra Jeanne Rhodes. 20 <PAGE> 979 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-3 Unaudited Statements of Earnings and Retained Earnings...... F-4 Condensed Notes to Unaudited Historical Financial Statements................................................ F-5 </TABLE> F-1 <PAGE> 980 BELK-RHODES COMPANY, (ROME, GEORGIA) UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 82,988 $ 130,276 Accounts receivable, net.................................. 1,347,014 1,526,499 Merchandise inventory..................................... 1,894,990 1,914,669 Receivable from affiliates, net........................... 1,134,160 1,001,031 Refundable income taxes................................... 81,477 120,105 Deferred income taxes..................................... 14,623 -- Other..................................................... 130,713 150,122 ---------- ---------- Total current assets........................................ 4,685,965 4,842,702 Investments................................................. 43,538 43,538 Property, plant and equipment, net.......................... 326,992 269,861 Deferred income taxes....................................... 246,204 244,146 Other noncurrent assets..................................... 42,778 39,003 ---------- ---------- $5,345,477 $5,439,250 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 447,472 $ 421,484 Deferred income taxes..................................... -- 3,471 Accrued income taxes...................................... -- 14,039 ---------- ---------- Total current liabilities................................... 447,472 438,994 Loans payable to affiliates, net............................ 800,000 800,000 Other noncurrent liabilities................................ 337,448 344,325 ---------- ---------- Total liabilities........................................... 1,584,920 1,583,319 Deferred income............................................. 603,165 562,954 Shareholders' equity: Common stock.............................................. 1,224,000 1,224,000 Additional paid in capital................................ 18,557 18,557 Retained earnings......................................... 1,914,835 2,050,420 ---------- ---------- Total shareholders' equity.................................. 3,157,392 3,292,977 ---------- ---------- $5,345,477 $5,439,250 ========== ========== </TABLE> F-2 <PAGE> 981 BELK-RHODES COMPANY, (ROME, GEORGIA) UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales................................................. $11,307,883 $9,571,859 $8,479,043 Operating costs and expenses.............................. 11,235,562 9,730,410 8,058,684 ----------- ---------- ---------- Income from operations.................................... 72,321 (158,551) 420,359 ----------- ---------- ---------- Other income (expense): Interest, net........................................... (132,919) (80,597) (73,755) Dividend income......................................... 22,000 24,200 24,200 Gain (loss) on disposal of property, plant and equipment............................................ -- (103,766) 3,500 Gain (loss) on sale of securities....................... 66,114 -- -- Miscellaneous, net...................................... (14,194) (783) 1,258 ----------- ---------- ---------- Total other expense, net.................................. (58,999) (160,946) (44,797) ----------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities....... 13,322 (319,497) 375,562 Income tax expense (benefit).............................. (23,156) (86,941) 117,577 ----------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities..................... 36,478 (232,556) 257,985 ----------- ---------- ---------- Net earnings.............................................. 36,478 (232,556) 257,985 Retained earnings at beginning of period.................. 2,478,113 2,330,991 1,914,835 Dividends paid............................................ (183,600) (183,600) (122,400) ----------- ---------- ---------- Retained earnings at end of period........................ $ 2,330,991 $1,914,835 $2,050,420 =========== ========== ========== </TABLE> F-3 <PAGE> 982 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 983 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 984 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 985 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 986 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 987 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 988 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 989 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 990 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 8,479,043 $257,985 $449,317 $543,419 $3,292,977 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $ 8,479,043 257,985 449,317 543,419 3,292,977 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... (2,404) (3,500) (3,500) Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... (2,404) (3,500) (3,500) -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. (16,624) (24,200) (24,200) Adjustment for ownership in other Belk entities.................................. (43,538) -------- -------- -------- ---------- Per Model..................................... $238,957 $421,617 $515,719 $3,249,439 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (130,276) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (1,001,031) Loans receivable from affiliates, net..... -- Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... 800,000 ----------- Net debt (cash)............................... (331,307) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $ (331,307) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 991 SUPPLEMENT NO. 22 <PAGE> 992 BELK-RHODES COMPANY, (ROME, GEORGIA) THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 22 <PAGE> 993 BELK OF STATESBORO, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Statesboro, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 24.9249 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 324 shares of New Belk Class A Common Stock which will represent approximately 0.0005% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 994 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 995 BELK OF STATESBORO, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF STATESBORO, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Statesboro, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 24.9249 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 996 BELK OF STATESBORO, GA., INC. SUPPLEMENT NO. 23 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 23 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF STATESBORO, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 16 SELECTED HISTORICAL FINANCIAL INFORMATION................... 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 18 BUSINESS OF THE COMPANY..................................... 18 SECURITY OWNERSHIP OF THE COMPANY........................... 19 INDEX TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS................................................ F-1 Unaudited Consolidated Balance Sheets..................... F-2 Unaudited Consolidated Statements of Earnings and Retained Earnings............................................... F-3 Condensed Notes to Unaudited Consolidated Historical Financial Statements................................... F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 997 THE COMPANY The Company was incorporated as a Georgia corporation in 1934 as Belk's Department Store of Augusta, Georgia, Inc. The Company changed its name to Belk of Statesboro, Ga., Inc. on July 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 24.9249 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 998 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 30,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 999 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 1000 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or 5 <PAGE> 1001 alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action 6 <PAGE> 1002 which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless 7 <PAGE> 1003 otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 1004 Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he 9 <PAGE> 1005 was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 1006 circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 1007 The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. 12 <PAGE> 1008 A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts 13 <PAGE> 1009 awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ------ -------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $15,951,470 $15,951,470 0.6 $(4,031,050) $13,601,932 EBITDA............... (927,332) 251,932 7 (4,031,050) 5,794,574 EBIT................. (1,344,399) (165,135) 10 (4,031,050) 2,379,700 Net Income (loss).... (1,059,507) (246,803) 15 -- (3,702,045) Book Equity.......... 10,646,618 10,641,637 1 -- 10,641,637 </TABLE> 14 <PAGE> 1010 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk-Lindsey Stores, Inc. .4269% X $76,945,152 = $ 328,478 ----------- Total $ 328,478 =========== Relative Operating Value of Company $13,601,932 Relative Operating Value of Other Companies Owned by Company + 328,478 ----------- Total Relative Value of Company = $13,930,410 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. 99.9552% X $13,930,410 = $13,924,169 ----------- Total $13,924,169 =========== Total Relative Value of Company $13,930,410 Total Relative Value of Company Owned by Other Belk Companies - $13,924,169 ----------- Net Relative Value of Company = $ 6,241 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 6,241 / $1,155,623,145 = .0005% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.0005% X 60,000,007) / 13 = 24.9249 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 15 <PAGE> 1011 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $(36.52) Book value per share(2)................................... 367.02 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 23.66 Book value per share...................................... 315.60 </TABLE> - --------------- (1) Based on 29,008 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 29,008 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 16 <PAGE> 1012 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $19,320 $17,860 $15,951 Net income (loss)........................................... (752) (622) (1,060) Per common share Net income (loss)(1)...................................... (25.94) (21.46) (36.52) Dividends................................................. -- -- -- Book value(2)............................................. 218.16 196.71 367.02 Total assets................................................ 12,804 11,897 11,908 Shareholders' equity........................................ 6,329 5,706 10,647 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $11,576 $9,767 Income (loss) from operations............................... (794) 523 </TABLE> - --------------- (1) Based on 29,008 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 29,008 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 17 <PAGE> 1013 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. During fiscal year 1997, income from operations decreased due to a $1,180,544 impairment loss on fixed assets related to the closing of the Augusta, Georgia store. For the nine months ended November 1, 1997, the Company's income from operations increased compared to the same period in 1996 as a result of closing the underperforming Augusta, Georgia location in the prior year. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Statesboro Mall in Statesboro, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. Specific competitors in the Company's market include Penney, Goody's and Wal-Mart. In addition, the Company owns 100% of the capital stock of Belk Department Store of North Augusta, South Carolina, Inc., a South Carolina Corporation ("Belk North Augusta"). Belk-North Augusta operates a retail department store in Martintown Plaza in North Augusta, South Carolina. The department store operated by Belk-North Augusta generally operates in a manner consistent with the operations of the Belk Companies' retail department store business. Specific competitors within Belk-North Augusta's market include Hamrick's, Goody's and Wal-Mart. Both stores are managed out of the Kerr group office in Norcross, Georgia. Facilities. The Company leases its store building, which contains approximately 67,000 square feet of floor area. The current term of the lease expires in 2004. The Company believes the building is adequate to meet its current needs. Belk-North Augusta leases its store building, which contains approximately 46,000 square feet of floor area. The current term of the lease expires in 2004. The Company believes the building is adequate to meet its current needs. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 18 <PAGE> 1014 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)........... 28,995 99.96% Thomas M. Belk, Jr. (Director and Executive Officer) (a).... 28,995 99.96% H. W. McKay Belk (Director and Executive Officer) (a)....... 28,995 99.96% John R. Belk (Director and Executive Officer) (a)........... 28,995 99.96% Henderson Belk (Director)................................... 0 * Leroy Robinson (Director)................................... 0 * Robert K. Kerr, Jr. (Director and Executive Officer)........ 0 * Belk Enterprises, Inc. ..................................... 28,995 99.96% All Directors and Executive Officers as a group (7 persons).................................................. 28,995 99.96% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071; Belk Enterprises, Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 28,995 shares held by Belk Enterprises, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of such corporation, under authority given by the directors of such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. 19 <PAGE> 1015 INDEX TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Consolidated Balance Sheets....................... F-2 Unaudited Consolidated Statements of Earnings and Retained Earnings.................................................. F-3 Condensed Notes to Unaudited Consolidated Historical Financial Statements...................................... F-4 </TABLE> F-1 <PAGE> 1016 BELK OF STATESBORO, GA., INC. UNAUDITED CONSOLIDATED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 266,840 $ 308,596 Accounts receivable, net.................................. 2,994,886 2,979,977 Merchandise inventory..................................... 3,626,199 2,816,194 Receivable from affiliates, net........................... 2,261,156 2,258,198 Refundable income taxes................................... 4,243 2,365 Other..................................................... 178,951 131,597 ----------- ----------- Total current assets........................................ 9,332,275 8,496,927 Loans receivable from affiliates, net....................... -- 1,464,256 Investments................................................. 4,981 4,981 Property, plant and equipment, net.......................... 2,403,214 1,885,535 Other noncurrent assets..................................... 156,455 56,633 ----------- ----------- $11,896,925 $11,908,332 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 1,083,295 $ 812,658 Deferred income taxes..................................... 159,806 116,223 ----------- ----------- Total current liabilities................................... 1,243,101 928,881 Loans payable to affiliates, net............................ 4,569,162 -- Other noncurrent liabilities................................ 124,287 112,483 ----------- ----------- Total liabilities........................................... 5,936,550 1,041,364 Deferred income............................................. 254,250 220,350 Shareholders' equity: Common stock.............................................. 2,900,800 2,900,800 Additional paid in capital................................ -- 6,000,000 Retained earnings......................................... 2,805,325 1,745,818 ----------- ----------- Total shareholders' equity.................................. 5,706,125 10,646,618 ----------- ----------- $11,896,925 $11,908,332 =========== =========== </TABLE> F-2 <PAGE> 1017 BELK OF STATESBORO, GA., INC. UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $19,342,589 $17,859,618 $15,951,470 Less: Leased Sales...................................... 22,992 -- -- ----------- ----------- ----------- Net sales............................................... 19,319,597 17,859,618 15,951,470 Operating costs and expenses............................ 20,085,978 18,488,177 16,119,353 Impairment loss......................................... -- -- 1,180,544 ----------- ----------- ----------- Income from operations.................................. (766,381) (628,559) (1,348,427) ----------- ----------- ----------- Other income (expense): Interest, net......................................... (336,043) (273,094) (192,984) Dividend income....................................... -- -- 780 Gain (loss) on disposal of property, plant and equipment.......................................... (4,686) 845 500 Miscellaneous, net.................................... (18,264) 5,648 2,748 ----------- ----------- ----------- Total other expense, net................................ (358,993) (266,601) (188,956) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... (1,125,374) (895,160) (1,537,383) Income tax expense (benefit)............................ (373,007) (272,768) (477,876) ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... (752,367) (622,392) (1,059,507) ----------- ----------- ----------- Net earnings............................................ (752,367) (622,392) (1,059,507) Retained earnings at beginning of period................ 4,180,084 3,427,717 2,805,325 ----------- ----------- ----------- Retained earnings at end of period...................... $ 3,427,717 $ 2,805,325 $ 1,745,818 =========== =========== =========== </TABLE> F-3 <PAGE> 1018 CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1019 CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1020 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 1021 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 1022 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 1023 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 1024 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 1025 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 1026 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ----------- ----------- ----------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement............. $15,951,470 $(1,059,507) $(1,344,399) $ (927,332) $ 10,646,618 Adjustments to eliminate less than wholly-owned subsidiaries............. -- -- -- -- -- ----------- ----------- ----------- ----------- ------------ Adjusted Shareholders' Statement........ $15,951,470 (1,059,507) (1,344,399) (927,332) 10,646,618 =========== ----------- ----------- ----------- ------------ Adjustments for non-operating items: Gain/loss on disposal of PP&E......... (345) (500) (500) Gain/loss on sale of securities....... -- -- -- Impairment loss....................... 813,587 1,180,544 1,180,544 Equity in earnings of unconsolidated subsidiaries........................ -- -- -- Gain/loss on discontinued operations.......................... -- -- -- Adjustment to tax expense............. -- -- -- -- ----------- ----------- ----------- Total non-operating items............... 813,242 1,180,044 1,180,044 ----------- ----------- ----------- Other Adjustments: Adjustment for dividends received from other Belk entities................. (538) (780) (780) Adjustment for ownership in other Belk entities............................ (4,981) ----------- ----------- ----------- ------------ Per Model............................... $ (246,803) $ (165,135) $ 251,932 $ 10,641,637 =========== =========== =========== ============ COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents............. $ (308,596) Negative cash balances reclassified to accounts payable............... -- Receivables from affiliates, net.... (2,258,198) Loans receivable from affiliates, net............................... (1,464,256) Liabilities Notes payable....................... -- Current installments of long-term debt.............................. -- Current portion of obligations under capital leases.................... -- Payables to affiliates, net......... -- Long-term debt, excluding current installments...................... -- Obligations under capital leases, excluding current portion......... -- Loans payable to affiliates, net.... -- ----------- Net debt (cash)......................... (4,031,050) Adjustments to eliminate less than wholly-owned subsidiaries............. -- ----------- Per Model............................... $(4,031,050) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1027 SUPPLEMENT NO. 23 <PAGE> 1028 BELK OF STATESBORO, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: ,1998 ------------------ ----------------------------- Signature ----------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 23 <PAGE> 1029 BELK OF THOMASTON, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Thomaston, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $1.00 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 0.4198 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 528,093 shares of New Belk Class A Common Stock which will represent approximately 0.8802% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 1030 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1031 BELK OF THOMASTON, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF THOMASTON, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Thomaston, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $1.00 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 0.4198 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1032 BELK OF THOMASTON, GA., INC. SUPPLEMENT NO. 24 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 24 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF THOMASTON, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 21 INDEX TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS................................................ F-1 Unaudited Consolidated Balance Sheets..................... F-2 Unaudited Consolidated Statements of Earnings and Retained Earnings............................................... F-3 Condensed Notes to Unaudited Consolidated Historical Financial Statements................................... F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 1033 THE COMPANY The Company was incorporated as a Georgia corporation in 1960 as Belk-Gallant Company of Thomaston, Ga., Inc. The Company changed its name to Belk of Thomaston, Ga., Inc. on July 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $1.00 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his or her dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 0.4198 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 1034 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to rely on New Belk to finance renovations needed at some of its stores. For example, the Company owns 100% of the capital stock of Belk Chattanooga, which operates the Belk store in Chattanooga, Tennessee. The Chattanooga market has become increasingly competitive, which will likely require that the Chattanooga store be expanded in order to compete effectively in the market. The Company may not have adequate resources of its own to finance the expansion of the Chattanooga store. The Merger will enable the Company to rely on New Belk to finance any such expansion of the Chattanooga store. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full 3 <PAGE> 1035 text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 4,000,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Belk Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In 4 <PAGE> 1036 the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. 5 <PAGE> 1037 According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class, or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board shall have concurrent power, by vote of a majority of all of the directors, to make, alter, amend and rescind the Company Bylaws. The bylaws enacted by the Shareholders may be affected by action of the Company Board and vice versa; provided, however, the Company Board may not re-enact a bylaw which the Shareholders have repealed or altered, nor 6 <PAGE> 1038 may it repeal a bylaw enacted by the Shareholders which limits the power of the Company Board or enhances or protects the right of Shareholders, without the consent of the Shareholders. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an 7 <PAGE> 1039 annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate 8 <PAGE> 1040 in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to 9 <PAGE> 1041 indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation 10 <PAGE> 1042 authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. 11 <PAGE> 1043 As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the 12 <PAGE> 1044 Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued 13 <PAGE> 1045 interest. If the Company does not commence proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) 14 <PAGE> 1046 upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales................. $28,689,464 $28,689,464 0.6 $10,843,214 $ 6,370,464 EBITDA.................... 2,018,818 656,022 7 10,843,214 (6,251,060) EBIT...................... 1,145,195 (217,601) 10 10,843,214 (13,019,224) Net Income (loss)......... 25,376 (674,490) 15 -- (10,117,350) Book Equity............... 12,727,667 2,266,419 1 -- 2,266,419 </TABLE> 15 <PAGE> 1047 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk's Department Store, Incorporated of Aiken, South Carolina 6.6667% X $ 3,110,056 = $ 207,338 Belk's Department Store of Albany, Georgia 1.6667 X 6,361,246 = 106,023 Belk of Athens, Ga., Inc. .2402 X 14,289,892 = 34,324 Belk's Department Store of Cartersville, Georgia, Incorporated .1426 X 3,810,247 = 5,433 Belk of Covington, Ga., Inc. .4167 X 41,579,688 = 19,084 Belk of Dalton, Ga., Inc. .6292 X 8,605,017 = 54,143 Belk of LaGrange, Ga., Inc. 5.2214 X 25,267,525 = 1,319,319 Belk-Matthews Company of Macon, Georgia .6400 X 14,496,059 = 92,775 Belk of Monroe, Ga., Inc. .6300 X 1,961,637 = 12,358 Belk of Cornelia, Ga., Inc. .7523 X 4,947,119 = 37,217 Belk of Thomson, Ga., Inc. .4399 X 1,433,505 = 6,306 Belk of Newnan, Ga., Inc. .0543 X 1,320,331 = 717 Belk of Orangeburg, S.C., Inc. 1.1047 X 11,906,535 = 131,531 Belk-Rhodes Company, (Rome, Georgia) 2.3693 X 6,599,184 = 156,354 Belk of Toccoa, Ga., Inc. 1.5789 X 4,349,964 = 68,682 Belk of Walterboro, S.C., Inc. .4013 X 2,473,317 = 9,925 Belk of Waycross, Ga., Inc. 49.3901 X 43,824,848 = 21,645,136 Belk of Canton, Ga., Inc. 1.2422 X 2,207,655 = 27,425 Belk of Winnsboro, S.C. .3663 X 845,995 = 3,099 ----------- Total $23,937,189 =========== Relative Operating Value of Company $ 6,370,464 ----------- Relative Operating Value of Other Companies Owned by Company + 23,937,189 ----------- Total Relative Value of Company = $30,307,653 =========== </TABLE> 16 <PAGE> 1048 The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk of Athens, Ga., Inc. 11.0555% X $30,307,653 = $ 3,350,663 Belk Brothers Company 10.0048% X 30,307,653 = 3,032,220 Belk Enterprises, Inc. 41.5589% X 30,307,653 = 12,595,527 Belk Finance Company 3.8180% X 30,307,653 = 1,157,146 Belk of LaGrange, Ga., Inc. .0027% X 30,307,653 = 818 ----------- Total $20,136,374 =========== Total Relative Value of Company $30,307,653 Total Relative Value of Company Owned by Other Belk Companies - 20,136,374 ----------- Net Relative Value of Company = $10,171,279 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $10,171,279 / $1,155,623,145 = .8802% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.8802% X 60,000,007) / 1,257,927 = .4198 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 1049 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 0.01 Book value per share(2)................................... 3.40 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 0.40 Book value per share...................................... 5.32 </TABLE> - --------------- (1) Based on 3,748,276 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 3,748,276 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 1050 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $28,779 $29,560 $28,689 Net income.................................................. 1,638 622 25 Per common share Net income (loss)(1)...................................... 0.44 0.17 0.01 Dividends................................................. 0.01 0.02 0.03 Book value(2)............................................. 3.23 3.42 3.40 Total assets................................................ 27,634 30,689 27,588 Shareholders' equity........................................ 12,124 12,803 12,728 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $19,646 $18,246 Income (loss) from operations............................... (1,034) (316) </TABLE> - --------------- (1) Based on 3,748,276 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 3,748,276 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 19 <PAGE> 1051 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. During fiscal year 1995, the Company opened a store located in the Chattanooga, Tennessee Northgate Mall which was subsequently closed in August of fiscal year 1998. In addition, the company closed their Newport, Tennessee location in fiscal year 1996. The majority of the Company's capital needs have been funded by loans from other Belk companies. The Company would not be able to obtain similar financing from third party lenders. BUSINESS OF THE COMPANY General. The Company operates two retail department stores in the following locations in Georgia: North Griffin Square in Griffin and North Creek Mall in Thomaston. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The Company also operates the Kerr group office, which provides buying, advertising, accounting, personnel and other services to stores in the Kerr group area. In addition, the Company owns 100% of the capital stock of Belk Department Store of Chattanooga, Tennessee, Incorporated, a Tennessee Corporation ("Belk Chattanooga"), which operates a retail department store in Hamilton Place in Chattanooga. The department store operated by Belk Chattanooga generally operates in a manner consistent with the operations of the Belk Companies' retail department store business. Facilities. The Company operates two stores, both of which are leased under long-term leases. The store leases have termination dates ranging from 1998 through 2007, and for the lease terminating in 1998, the Company has options to extend the lease until 2018. The Company believes these facilities are adequate to meet its current needs; however, the Company is evaluating the profitability of continuing its operations at North Creek Mall in Thomaston. These stores are managed out of the Kerr group office in Norcross, Georgia. Belk Chattanooga leases the store building in Hamilton Place, which contains approximately 132,000 square feet of floor area. The current term of the lease expires in 2007. The Company does not believe that the facilities at Hamilton Place are adequate to meet its current needs. The Company is currently evaluating the possibility of expanding its Hamilton Place store. This store is managed out of the Kuhne/Greiner group office in Greenville, South Carolina. Competition. Specific competitors in the Company's markets include Wal-Mart, Penney and Goody's. Specific competitors within Belk Chattanooga's market include Proffitt's, Parisian, Penney and Sears. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 20 <PAGE> 1052 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)........................................ 2,815,978 75.1% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(e)(f)(g).............................................. 2,624,399 70.0% H. W. McKay Belk (Director and Executive Officer) (b)(e)(f)(h).............................................. 2,624,291 70.0% John R. Belk (Director and Executive Officer) (b)(e)(f)(i).............................................. 2,616,439 69.8% Henderson Belk (Director) (c)(d)............................ 31,933 * Sarah Belk Gambrell (Director) (c)(d)....................... 352,533 9.4% Leroy Robinson (Director) (b)............................... 69,176 1.8% Robert K. Kerr, Jr. (Director and Executive Officer)........ 0 * Belk of Athens, Ga., Inc. .................................. 414,389 11.1% Belk Enterprises, Inc. ..................................... 1,557,743 41.6% J.V. Properties............................................. 375,007 10.0% All Directors and Executive Officers as a group (7 persons).................................................. 3,003,032 80.1% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Robert K. Kerr, Jr. -- 1890-D Beaver Ridge Circle, Norcross, Ga. 30071; Belk of Athens, Ga., Inc., Belk Enterprises, Inc. and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 76,701 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 69,176 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 29,920 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 2,013 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 21 <PAGE> 1053 (e) Includes 414,389 shares held by Belk of Athens, Ga., Inc., 100 shares held by Belk of LaGrange, Ga., Inc., 1,557,743 shares held by Belk Enterprises, Inc. and 143,110 shares held by Belk Finance Company, which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (f) Includes 375,007 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (g) Includes 2,344 shares held by Thomas M. Belk, Jr. as custodian for his minor children and 555 shares held as custodian for the minor children of his brother, H. W. McKay Belk. (h) Includes 3,344 shares held by H. W. McKay Belk as custodian for his minor children. (i) Includes 1,258 shares held by John R. Belk as custodian for his minor children. 22 <PAGE> 1054 INDEX TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Consolidated Balance Sheets....................... F-2 Unaudited Consolidated Statements of Earnings and Retained Earnings.................................................. F-3 Condensed Notes to Unaudited Consolidated Historical Financial Statements...................................... F-4 </TABLE> F-1 <PAGE> 1055 BELK OF THOMASTON, GA., INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 6,068,564 $ 1,074,202 Accounts receivable, net.................................. 4,741,324 5,576,275 Merchandise inventory..................................... 5,847,048 6,251,019 Refundable income taxes................................... 209,132 356,953 Deferred income taxes..................................... 143,193 101,696 Other..................................................... 468,227 422,527 ----------- ----------- Total current assets........................................ 17,477,488 13,782,672 Investments................................................. 8,854,937 10,461,248 Property, plant and equipment, net.......................... 4,003,469 3,010,104 Deferred income taxes....................................... 230,098 211,304 Other noncurrent assets..................................... 122,514 122,242 ----------- ----------- $30,688,506 $27,587,570 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable............................................. $ -- $ 2,500,000 Accounts payable and accrued expenses..................... 1,589,229 1,684,969 Payables to affiliates, net............................... 3,650,011 1,776,296 Accrued income taxes...................................... -- 46,449 ----------- ----------- Total current liabilities................................... 5,239,240 6,007,714 Loans payable to affiliates, net............................ 11,313,119 7,641,119 Other noncurrent liabilities................................ 1,045,999 1,178,872 ----------- ----------- Total liabilities........................................... 17,598,358 14,827,705 Deferred income............................................. 37,564 32,198 Minority interest........................................... 249,503 -- Shareholders' equity: Common stock.............................................. 3,748,276 3,748,276 Retained earnings......................................... 9,054,805 8,979,391 ----------- ----------- Total shareholders' equity.................................. 12,803,081 12,727,667 ----------- ----------- $30,688,506 $27,587,570 =========== =========== </TABLE> F-2 <PAGE> 1056 BELK OF THOMASTON, GA., INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $29,097,866 $29,900,536 $28,991,847 Less: Leased Sales...................................... 318,564 340,797 302,384 ----------- ----------- ----------- Net sales............................................... 28,779,302 29,559,739 28,689,463 Operating costs and expenses............................ 27,562,591 29,697,890 28,953,092 Impairment loss......................................... -- -- 312,309 ----------- ----------- ----------- Income from operations.................................. 1,216,711 (138,151) (575,938) ----------- ----------- ----------- Other income (expense): Interest, net......................................... (308,665) (606,127) (705,407) Dividend income....................................... 11,224 13,912 13,862 Gain (loss) on disposal of property, plant and equipment.......................................... (1,605) 7,149 (6,273) Miscellaneous, net.................................... 140,488 62,206 46,027 ----------- ----------- ----------- Total other expense, net................................ (158,558) (522,860) (651,791) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 1,058,153 (661,011) (1,227,729) Income tax expense (benefit)............................ 398,053 (203,643) (34,564) ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 660,100 (457,368) (1,193,165) Equity in earnings (loss) of unconsolidated entity, net of tax................................................ 978,164 1,083,696 1,218,540 Minority interest in (earnings) loss of unconsolidated subsidiaries.......................................... -- 4,425 -- ----------- ----------- ----------- Net earnings............................................ 1,638,264 621,903 25,375 Retained earnings at beginning of period................ 7,341,178 8,375,533 9,054,805 Dividends paid.......................................... (37,483) (74,966) (112,448) Purchase of treasury stock.............................. -- -- (70,674) Retained earnings adjustments........................... (566,426) 132,335 82,333 ----------- ----------- ----------- Retained earnings at end of period...................... $ 8,375,533 $ 9,054,805 8,979,391 =========== =========== =========== </TABLE> F-3 <PAGE> 1057 BELK-GALLANT COMPANY OF THOMASTON, GA., INC. AND SUBSIDIARY CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1997, 1996, and 1995 ended on February 1, 1997, February 3, 1996, and January 31, 1995 respectively. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. F-4 <PAGE> 1058 BELK-GALLANT COMPANY OF THOMASTON, GA., INC. AND SUBSIDIARY CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. (BSS) in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1995 and 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements F-5 <PAGE> 1059 BELK-GALLANT COMPANY OF THOMASTON, GA., INC. AND SUBSIDIARY CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. (12) RETAINED EARNINGS ADJUSTMENT Adjustment to Retained Earnings of the Company at February 1, 1997, is due to the liquidation of Belk Department Store of Chattanooga, Tennessee, Incorporated's (Chattanooga) wholly owned subsidiary, Parks-Belk Company of Newport, Tennessee (Newport) and the flow through of the retained earnings adjustment by the equity subsidiary, Belk-Hudson Company, of Waycross, Ga., Inc. (Waycross). Adjustment to Retained Earnings of the Company at February 3, 1996, is due to the correction of the ownership percentage of Waycross and purchase of Newport by Chattanooga. The financial statements for the year ended January 31, 1995 represent a combination of Thomaston, Chattanooga, and Newport and are presented for comparative purposes only. F-6 <PAGE> 1060 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 1061 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 1062 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 1063 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 1064 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 1065 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 1066 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ----------- ----------- ----------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.............. $28,689,464 $ 25,376 $ 1,145,195 $ 2,018,818 $ 12,727,667 Adjustments to eliminate less than wholly-owned subsidiaries.............. -- -- -- -- -- ----------- ----------- ----------- ----------- ------------ Adjusted Shareholders' Statement......... $28,689,464 25,376 1,145,195 2,018,818 12,727,667 =========== ----------- ----------- ----------- ------------ Adjustments for non-operating items: Gain/loss on disposal of PP&E.......... 4,584 6,273 6,273 Gain/loss on sale of securities........ -- -- -- Impairment loss........................ 228,220 312,309 312,309 Equity in earnings of unconsolidated subsidiaries......................... (1,218,540) (1,667,516) (1,667,516) Gain/loss on discontinued operations... -- -- -- Adjustment to tax expense.............. 296,000 -- -- -- ----------- ----------- ----------- Total non-operating items................ (689,736) (1,348,934) (1,348,934) ----------- ----------- ----------- Other Adjustments: Adjustment for dividends received from other Belk entities.................. (10,130) (13,862) (13,862) Adjustment for ownership in other Belk entities............................. (10,461,248) ----------- ----------- ----------- ------------ Per Model................................ $ (674,490) $ (217,601) $ 656,022 $ 2,266,419 =========== =========== =========== ============ COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.............. $(1,074,201) Negative cash balances reclassified to accounts payable................ -- Receivables from affiliates, net..... -- Loans receivable from affiliates, net................................ -- Liabilities Notes payable........................ 2,500,000 Current installments of long-term debt............................... -- Current portion of obligations under capital leases..................... -- Payables to affiliates, net.......... 1,776,296 Long-term debt, excluding current installments....................... -- Obligations under capital leases, excluding current portion.......... -- Loans payable to affiliates, net..... 7,641,119 ----------- Net debt (cash).......................... 10,843,214 Adjustments to eliminate less than wholly-owned subsidiaries.............. -- ----------- Per Model................................ $10,843,214 =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1067 SUPPLEMENT NO. 24 <PAGE> 1068 BELK OF THOMASTON, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 24 <PAGE> 1069 BELK OF TOCCOA, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Toccoa, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 30.4792 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 127,159 shares of New Belk Class A Common Stock which will represent approximately 0.2119% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 1070 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1071 BELK OF TOCCOA, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF TOCCOA, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Toccoa, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 30.4792 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1072 BELK OF TOCCOA, GA., INC. SUPPLEMENT NO. 25 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 25 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF TOCCOA, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 1073 THE COMPANY The Company was incorporated as Georgia corporation in 1937. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 30.4792 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1074 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 8,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 1075 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 1076 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or 5 <PAGE> 1077 alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action 6 <PAGE> 1078 which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless 7 <PAGE> 1079 otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 1080 Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he 9 <PAGE> 1081 was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 1082 circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 1083 The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. 12 <PAGE> 1084 A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts 13 <PAGE> 1085 awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Revenue Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales..................... $4,592,753 $4,592,753 0.6 $678,546 $2,077,106 EBITDA........................ 372,059 353,039 7 678,546 1,792,727 EBIT.......................... 192,187 173,167 10 678,546 1,053,124 Net Income.................... 123,879 104,882 15 -- 1,573,230 Book Equity................... 2,605,022 2,205,439 1 -- 2,205,439 </TABLE> 14 <PAGE> 1086 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk's Department Store of Albany, Georgia 10.3056% X $ 6,361,246 = $ 655,565 Belk of Americus, Ga., Inc. 9.4072% X 2,375,853 = 223,501 Belk of Athens, Ga., Inc. 1.7356% X 14,289,892 = 248,015 Belk-Simpson Co., of Bainbridge, Ga., Inc. 5.3333% X 3,606,676 = 192,355 Belk of Dalton, Ga., Inc. 7.5024% X 8,605,017 = 645,583 Belk of Waycross, Ga., Inc. .4096% X 43,824,848 = 179,507 ---------- Total $2,144,526 ========== Relative Operating Value of Company $2,205,439 Relative Operating Value of Other Companies Owned by Company + 2,144,526 ---------- Total Relative Value of Company = $4,349,965 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Gallant-Belk Company 4.8043% X $4,349,964 = $ 208,985 Belk Brothers Company 9.4467% X 4,349,964 = 410,928 Belk Enterprises, Inc. 14.2105% X 4,349,964 = 618,152 Belk of Cornelia, Ga., Inc. .9717% X 4,349,964 = 42,269 Belk of LaGrange, Ga., Inc. 9.0148% X 4,349,964 = 392,141 Belk Brothers of Monroe, North Carolina, Incorporated 3.6707% X 4,349,964 = 159,674 Belk of Thomaston, Ga., Inc. 1.5789% X 4,349,964 = 68,681 ---------- Total $1,900,830 ========== Total Relative Value of Company $4,349,964 Total Relative Value of Company Owned by Other Belk Companies - 1,900,830 ---------- Net Relative Value of Company = $2,449,134 ========== </TABLE> 15 <PAGE> 1087 The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $2,449,133 / $1,155,623,145 = .2119% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.2119% X 60,000,007) / 4,172 = 30.4792 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1088 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 16.72 Book value per share(2)................................... 351.55 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 28.93 Book value per share...................................... 385.93 </TABLE> - --------------- (1) Based on 7,410 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 7,410 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1089 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 3,525 $ 4,697 $ 4,593 Net income (loss)........................................... 125 (60) 124 Per common share Net income (loss)(1)...................................... 16.84 (8.06) 16.72 Dividends................................................. 10.00 10.00 10.00 Book value(2)............................................. 362.90 344.84 351.55 Total assets................................................ 2,849 3,586 3,766 Shareholders' equity........................................ 2,689 2,555 2,605 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $3,223 $3,223 Income from operations...................................... 19 113 </TABLE> - --------------- (1) Based on 7,410 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 7,410 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1090 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. In July of fiscal year 1996, the Company relocated its only store from a downtown location to a shopping center site. Income from operations decreased for the year as a result of increased rent and depreciation expense due to the relocation along with a decrease in gross margin incurred during the closing of the old downtown location. BUSINESS OF THE COMPANY General. The Company operates a retail department store in the Ingles Shopping Center in Toccoa, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Long group office in Anderson, South Carolina. Facilities. The Company leases its store building, which contains approximately 41,000 square feet of floor area. The current term of the lease expires in 2003. The Company believes the building is adequate to meet its current needs. Competition. The Company's principal competitor in the market is Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1091 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)........................................ 5,278 71.2% Thomas M. Belk, Jr. (Director and Executive Officer) (c)(e)(f)................................................. 3,760 50.7% H. W. McKay Belk (Director and Executive Officer) (c)(e)(f)................................................. 3,790 51.1% John R. Belk (Director and Executive Officer) (c)(e)(f)..... 3,760 50.7% Henderson Belk (Director) (d)............................... 640 8.6% Sarah Belk Gambrell (d)..................................... 1,696 22.9% Leroy Robinson (Director) (c)............................... 346 4.7% B. Neal Long (Director and Executive Officer)............... 0 * Katherine Belk Morris (c)................................... 522 7.0% Montgomery Investment Company............................... 640 8.6% Belk of LaGrange, Ga., Inc. ................................ 668 9.0% Belk Enterprises, Inc. ..................................... 1,053 14.2% J.V. Properties............................................. 700 9.4% All Directors and Executive Officers as a group (8 persons).................................................. 5,806 78.4% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; B. Neal Long -- 3101 N. Main Street, Anderson, S.C. 29621; Montgomery Investment Company, Belk of LaGrange, Ga., Inc., Belk Enterprises, Inc. and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 640 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 8 shares held by Claudia W. Belk, U/A f/b/o Mary Claudia Belk. Claudia W. Belk, Trustee, is John M. Belk's wife. (c) Includes 346 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (d) Includes 640 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 20 <PAGE> 1092 (e) Includes 272 shares held by Belk Brothers of Monroe, North Carolina, Incorporated, 356 shares held by Gallant-Belk Company, 668 shares held by Belk of LaGrange, Ga., Inc., 72 shares held by Belk of Cornelia, Ga., Inc., 1,053 shares held by Belk Enterprises, Inc. and 117 shares held by Belk of Thomaston, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (f) Includes 700 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. 21 <PAGE> 1093 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1094 BELK OF TOCCOA, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 125,695 $ 231,997 Accounts receivable, net.................................. 642,174 716,035 Merchandise inventory..................................... 1,033,663 1,104,504 Receivable from affiliates, net........................... 1,606 -- Refundable income taxes................................... 36,599 44,041 Deferred income taxes..................................... 8,036 6,784 Other..................................................... 34,741 46,134 ---------- ---------- Total current assets........................................ 1,882,514 2,149,495 Investments................................................. 399,684 399,684 Property, plant and equipment, net.......................... 1,283,321 1,199,756 Other noncurrent assets..................................... 20,325 17,308 ---------- ---------- $3,585,844 $3,766,243 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 231,503 $ 183,160 Payables to affiliates, net............................... -- 1,175 ---------- ---------- Total current liabilities................................... 231,503 184,335 Deferred income taxes....................................... 7,403 26,465 Loans payable to affiliates, net............................ 759,260 909,260 Other noncurrent liabilities................................ 32,434 41,161 ---------- ---------- Total liabilities........................................... 1,030,600 1,161,221 Shareholders' equity: Common stock.............................................. 741,000 741,000 Additional paid in capital................................ 4,465 4,465 Retained earnings......................................... 1,809,779 1,859,557 ---------- ---------- Total shareholders' equity.................................. 2,555,244 2,605,022 ---------- ---------- $3,585,844 $3,766,243 ========== ========== </TABLE> F-2 <PAGE> 1095 BELK OF TOCCOA, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $3,524,509 $4,696,719 $4,592,752 Operating costs and expenses............................... 3,381,296 4,790,886 4,422,630 ---------- ---------- ---------- Income from operations..................................... 143,213 (94,167) 170,122 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 21,515 (22,304) (68,161) Dividend income.......................................... 16,784 21,988 19,020 Gain (loss) on disposal of property, plant and equipment............................................. -- 18,394 -- Miscellaneous, net....................................... (514) 486 3,044 ---------- ---------- ---------- Total other expense, net................................... 37,785 18,564 (46,097) ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 180,998 (75,603) 124,025 Income tax expense (benefit)............................... 56,201 (15,876) 147 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 124,797 (59,727) 123,878 ---------- ---------- ---------- Net earnings............................................... 124,797 (59,727) 123,878 Retained earnings at beginning of period................... 1,892,909 1,943,606 1,809,779 Dividends paid............................................. (74,100) (74,100) (74,100) ---------- ---------- ---------- Retained earnings at end of period......................... $1,943,606 $1,809,779 $1,859,557 ========== ========== ========== </TABLE> F-3 <PAGE> 1096 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1097 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1098 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 1099 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 1100 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 1101 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 1102 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 1103 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 1104 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $4,592,753 $123,879 $192,187 $372,059 $2,605,022 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- -------- ---------- Adjusted Shareholders' Statement............... $4,592,753 123,879 192,187 372,059 2,605,022 ========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ -- -- -- Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- -------- -------- -------- Total non-operating items...................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. (18,997) (19,020) (19,020) Adjustment for ownership in other Belk entities................................... (399,583) -------- -------- -------- ---------- Per Model...................................... $104,882 $173,167 $353,039 $2,205,439 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (231,997) Negative cash balances reclassified to accounts payable......................... 108 Receivables from affiliates, net........... -- Loans receivable from affiliates, net...... -- Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ 1,175 Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... 909,260 ---------- Net debt (cash)................................ 678,546 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ 678,546 ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1105 SUPPLEMENT NO. 25 <PAGE> 1106 BELK OF TOCCOA, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 25 <PAGE> 1107 BELK-MATTHEWS COMPANY, VIDALIA, GEORGIA, INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Matthews Company, Vidalia, Georgia, Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 51.6141 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 218,018 shares of New Belk Class A Common Stock which will represent approximately 0.3634% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1108 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1109 BELK-MATTHEWS COMPANY, VIDALIA, GEORGIA, INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-MATTHEWS COMPANY, VIDALIA, GEORGIA, INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Matthews Company, Vidalia, Georgia, Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 51.6141 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1110 BELK-MATTHEWS COMPANY, VIDALIA, GEORGIA, INC. SUPPLEMENT NO. 26 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 26 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-MATTHEWS COMPANY, VIDALIA, GEORGIA, INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 1111 THE COMPANY The Company was incorporated as a Georgia corporation in 1956. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 51.6141 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1112 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 5,760 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 1113 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 1114 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or 5 <PAGE> 1115 alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board shall have concurrent power, by vote of a majority of all of the directors, to make, alter, amend and rescind the Company Bylaws. The bylaws enacted by the Shareholders may be affected by action of the Company Board and vice versa; provided, however, the Company Board may not re-enact a bylaw which the Shareholders have repealed or altered, nor may it repeal a bylaw enacted by the Shareholders which limits the powers of the Company Board or enhances or protects the right of Shareholders, without the consent of the Shareholders. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. 6 <PAGE> 1116 Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of 7 <PAGE> 1117 directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 1118 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them, (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in 9 <PAGE> 1119 connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the 10 <PAGE> 1120 interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (a) by persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk 11 <PAGE> 1121 Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect,(iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state 12 <PAGE> 1122 where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the 13 <PAGE> 1123 court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1124 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales...................... $8,257,483 $8,257,483 0.6 $59,453 $4,895,037 EBITDA......................... 671,511 671,511 7 59,453 4,641,124 EBIT........................... 502,204 502,204 10 59,453 4,962,587 Net Income..................... 276,731 276,731 15 -- 4,150,965 Book Equity.................... 4,479,503 4,479,503 1 -- 4,479,503 </TABLE> 15 <PAGE> 1125 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $N/A = $ N/A ---------- Total $ N/A ========== Relative Operating Value of Company $4,962,587 Relative Operating Value of Other Companies Owned by Company + -- ---------- Total Relative Value of Company = $4,962,587 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk of Dalton, Ga., Inc. 5.3686% X $4,962,587 = $ 266,421 Belk of LaGrange, Ga., Inc. 10.0160% X $4,962,587 = 497,053 ---------- Total $ 763,474 ========== Total Relative Value of Company $4,962,587 Total Relative Value of Company Owned by Other Belk Companies - 763,474 ---------- Net Relative Value of Company = $4,199,113 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $4,199,113 / $1,155,623,145 = .3634% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.3634% X 60,000,007) / 4,224 = 51.6141 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1126 SUPPLEMENT NO. 26 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 55.43 Book value per share(2)................................... 897.34 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 48.99 Book value per share...................................... 653.53 </TABLE> - --------------- (1) Based on 4,992 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 4,992 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1127 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 8,560 $ 8,426 $ 8,257 Net income.................................................. 190 213 277 Per common share Net income (loss)(1)...................................... 37.97 42.68 55.43 Dividends................................................. 10.00 15.00 15.00 Book value(2)............................................. 829.22 856.90 897.34 Total assets................................................ 5,385 5,192 5,493 Shareholders' equity........................................ 4,139 4,278 4,480 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $5,764 $5,758 Income from operations...................................... 256 237 </TABLE> - --------------- (1) Based on 4,992 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 4,992 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1128 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates two retail department stores in the following locations in Georgia: Cordele Square in Cordele and Brice Square in Vidalia. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Matthews group office in Macon, Georgia. Facilities. The Company operates two stores, of which one is leased under a long-term lease and the other is owned by the Company. The lease has a termination date of 2000. The floor area of the leased building in Cordele is approximately 29,000 square feet. The floor area of the owned building in Vidalia is approximately 45,000 square feet. The Company believes the facilities are adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1129 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)........ 2,304 46.2% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(b).................................................... 1,536 30.8% H. W. McKay Belk (Director and Executive Officer) (a)(b).... 1,536 30.8% John R. Belk (Director and Executive Officer) (a)(b)........ 1,536 30.8% Henderson Belk (Director)................................... 0 * Sarah Belk Gambrell......................................... 768 15.4% Leroy Robinson (a).......................................... 768 15.4% B. Frank Matthews, II (Director and Executive Officer) (c)....................................................... 340 6.8% Betty Choate Matthews....................................... 300 6.0% William M. Matthews, IV (Director and Executive Officer).... 434 8.7% William McGill Matthews, Jr................................. 282 5.6% Carson Henry Matthews....................................... 282 5.6% Evelyn Matthews Rehn........................................ 282 5.6% Katherine McKay Belk (b).................................... 768 15.4% Katherine Belk Morris (b)................................... 768 15.4% Thomas M. Belk, Trustee U/A dated September 15, 1993........ 768 15.4% Belk of LaGrange, Ga., Inc.................................. 500 10.0% Belk of Dalton, Ga., Inc.................................... 268 5.4% All Directors and Executive Officers as a group (8 persons).................................................. 3,078 61.7% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; B. Frank Matthews, II -- 2240 Remount Road, Gastonia, N.C. 28054; William M. Matthews, V, William McGill Matthews, Jr. and Carson Henry Matthews and Evelyn Matthews Rehn -- 3661 Eisenhower Parkway, Macon, Ga. 31206; Belk of LaGrange, Ga., Inc. and Belk of Dalton, Ga., Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 768 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 600 shares held by Belk LaGrange, Ga., Inc. and 268 shares held by Belk of Dalton, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting 20 <PAGE> 1130 of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (c) Includes 300 shares held by B. Frank Matthews, II's wife, Betty Choate Matthews. 21 <PAGE> 1131 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1132 BELK-MATTHEWS COMPANY, VIDALIA, GEORGIA, INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 156,418 $ 238,093 Accounts receivable, net.................................. 1,214,286 1,384,200 Merchandise inventory..................................... 1,675,695 1,847,127 Deferred income taxes..................................... 24,616 16,650 Other..................................................... 72,749 66,917 ---------- ---------- Total current assets........................................ 3,143,764 3,552,987 Loans receivable from affiliates, net....................... 5,263 5,263 Property, plant and equipment, net.......................... 2,011,736 1,908,290 Other noncurrent assets..................................... 31,496 26,619 ---------- ---------- $5,192,259 $5,493,159 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 468,096 $ 514,749 Payables to affiliates, net............................... 289,219 302,808 Accrued income taxes...................................... 3,253 60,656 ---------- ---------- Total current liabilities................................... 760,568 878,213 Deferred income taxes....................................... 120,335 93,847 Other noncurrent liabilities................................ 33,704 41,596 ---------- ---------- Total liabilities........................................... 914,607 1,013,656 Shareholders' equity: Common stock.............................................. 499,200 499,200 Retained earnings......................................... 3,778,452 3,980,303 ---------- ---------- Total shareholders' equity.................................. 4,277,652 4,479,503 ---------- ---------- $5,192,259 $5,493,159 ========== ========== </TABLE> F-2 <PAGE> 1133 BELK-MATTHEWS COMPANY, VIDALIA, GEORGIA, INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $8,559,655 $8,426,346 $8,257,483 Operating costs and expenses............................... 8,154,506 8,046,660 7,765,689 ---------- ---------- ---------- Income from operations..................................... 405,149 379,686 491,794 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (69,357) (47,682) (59,120) Gain (loss) on disposal of property, plant and equipment............................................. -- 1,246 -- Miscellaneous, net....................................... (2,742) 6,897 10,410 ---------- ---------- ---------- Total other expense, net................................... (72,099) (39,539) (48,710) ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 333,050 340,147 443,084 Income tax expense (benefit)............................... 143,490 127,099 166,353 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 189,560 213,048 276,731 ---------- ---------- ---------- Net earnings............................................... 189,560 213,048 276,731 Retained earnings at beginning of period................... 3,500,644 3,640,284 3,778,452 Dividends paid............................................. (49,920) (74,880) (74,880) ---------- ---------- ---------- Retained earnings at end of period......................... $3,640,284 $3,778,452 $3,980,303 ========== ========== ========== </TABLE> F-3 <PAGE> 1134 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years evidence suggests that the Company will not generate federal taxable income as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1135 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1136 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 1137 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 1138 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 1139 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 1140 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 1141 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 1142 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Applicable Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statement of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Applicable Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $8,257,483 $276,731 $502,204 $671,511 $4,479,503 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- -------- ---------- Adjusted Shareholders' Statement............... $8,257,483 276,731 502,204 671,511 4,479,503 ========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ -- -- -- Gain/loss on sale of securities.............. -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- -------- -------- -------- Total non-operating items...................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... -- -------- -------- -------- ---------- Per Model...................................... $276,731 $502,204 $671,511 $4,479,503 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (238,092) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... -- Loans receivable from affiliates, net...... (5,263) Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ 302,808 Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ 59,453 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ 59,453 ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1143 SUPPLEMENT NO. 26 <PAGE> 1144 BELK-MATTHEWS COMPANY, VIDALIA, GEORGIA, INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 26 <PAGE> 1145 BELK OF WASHINGTON, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Washington, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 27.4186 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 31,038 shares of New Belk Class A Common Stock which will represent approximately 0.0517% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 1146 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1147 BELK OF WASHINGTON, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF WASHINGTON, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Washington, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 27.4186 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1148 BELK OF WASHINGTON, GA., INC. SUPPLEMENT NO. 27 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 27 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF WASHINGTON, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 1149 THE COMPANY The Company was incorporated as a Georgia corporation in 1941 as Belk-Gallant Company of Washington, Georgia. The Company changed its name to Belk of Washington, Ga., Inc. on July 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 27.4186 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 1150 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to share the risks of the Company's uncertain prospects in its market. The Company's store is located in a smaller market that has recently experienced relatively little growth. The Company's management has considered from time to time whether to relocate the Company's store to another market with better growth prospects. The Merger would enable the Company to rely on New Belk to provide the capital necessary to effect any such relocation. If the Company does not participate in the Reorganization and is required to finance the relocation of its store on its own, there can be no assurance that the Company would be able to obtain the financing necessary to relocate its store to another market with better growth prospects. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full 3 <PAGE> 1151 text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 2,428 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In 4 <PAGE> 1152 the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any Shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. 5 <PAGE> 1153 According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles specify that to liquidate and discontinue the business of the Company requires a two-thirds vote. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to 6 <PAGE> 1154 vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may to taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to 7 <PAGE> 1155 time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of 8 <PAGE> 1156 shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such 9 <PAGE> 1157 individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage 10 <PAGE> 1158 of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. 11 <PAGE> 1159 With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The 12 <PAGE> 1160 rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13, and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. 13 <PAGE> 1161 In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period")multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on the November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1162 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- --------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales.................... $ 843,575 $ 843,575 0.6 $(768,670) $1,274,815 EBITDA....................... 36,273 36,273 7 (768,670) 1,022,581 EBIT......................... 29,972 29,972 10 (768,670) 1,068,390 Net Income................... 65,674 65,674 15 -- 985,110 Book Equity.................. 1,081,768 1,081,569 1 -- 1,081,569 </TABLE> 15 <PAGE> 1163 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $N/A = $ N/A ---------- Total N/A ========== Relative Operating Value of Company $1,274,815 Relative Operating Value of Other Companies Owned by Company + -- ---------- Total Relative Value of Company = $1,274,815 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Gallant-Belk Company 9.9420% X $1,274,815 = $ 126,742 Belk Brothers Company 16.5700% X 1,274,815 = 211,237 Belk Enterprises, Inc. 23.1980% X 1,274,815 = 295,732 Belk of Dalton, Ga., Inc. 3.3969% X 1,274,815 = 43,304 ---------- Total $ 677,015 ========== Total Relative Value of Company $1,274,815 Total Relative Value of Company Owned by Other Belk Companies - 677,015 ---------- Net Relative Value of Company = $ 597,800 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $597,800 / $1,155,623,145 = .0517% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.0517% X 60,000,007) / 1,132 = 27.4186 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1164 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 27.21 Book value per share(2)................................... 448.12 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 26.03 Book value per share...................................... 347.17 </TABLE> - --------------- (1) Based on 2,414 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 2,414 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1165 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED ----------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales............................................... $ 872 $ 888 $ 844 Net income.............................................. 50 44 66 Per common share Net income (loss)(1).................................. 20.71 18.17 27.21 Dividends............................................. 15.00 15.00 15.00 Book value(2)......................................... 432.74 435.92 448.12 Total assets............................................ 1,093 1,156 1,157 Shareholders' equity.................................... 1,045 1,052 1,082 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED -------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $603 $525 Income from operations...................................... 19 28 </TABLE> - --------------- (1) Based on 2,414 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 2,414 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1166 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Other income (expense), net increased in fiscal year 1997 due to increased interest income. Net income increased in fiscal year 1997 primarily due to a lower cost of merchandise due to better inventory management and lower markdowns. Comparable store sales decreased in fiscal year 1997 and for the nine months ended November 1, 1997 as a result of decreased customer traffic. The shopping center is only 40% occupied. Access is partially blocked by the Department of Transportation due to the construction of an interstate connector that runs by the center. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Wilkes Village in Washington, Georgia. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Long group office in Anderson, South Carolina. Facilities. The Company leases its store building, which contains approximately 11,000 square feet of floor area. The current term of the lease expires in 1998. The Company has no options to renew the lease. The Company is currently studying the profitability of continuing its operations in Washington. Should the Company elect to continue operations, management believes that options to renew the lease at market rates would be available. The Company believes the store building is adequate to meet its current needs. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1167 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)........................................... 1,510 62.6% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(d)(e)................................................. 1,410 58.4% H. W. McKay Belk (Director and Executive Officer) (b)(d)(e)................................................. 1,410 58.4% John R. Belk (Director and Executive Officer) (b)(d)(e)..... 1,406 58.2% Henderson Belk (Director) (c)............................... 16 * Sarah Belk Gambrell (c)..................................... 406 16.8% Leroy Robinson (Director) (b)............................... 64 2.7% B. Neal Long (Director and Executive Officer)............... 0 * Katherine Belk Morris (b)................................... 124 5.1% Gallant-Belk Company........................................ 240 9.9% Belk Enterprises, Inc....................................... 560 23.2% J.V. Properties............................................. 400 16.6% All Directors and Executive Officers as a group (7 persons).................................................. 1,616 66.9% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; B. Neal Long -- 3101 N. Main Street, Anderson, S.C. 29621; Gallant-Belk Company, Belk Enterprises, Inc. and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 40 shares held by Claudia Belk Irrevocable Trust dated 1/4/94. Claudia W. Belk, Trustee, is John M. Belk's wife. (b) Includes 64 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 16 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 240 shares held by Gallant-Beck Company, 82 shares held by Belk of Dalton, Ga., Inc. and 560 shares held by Belk Enterprises, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. 20 <PAGE> 1168 (e) Includes 400 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. 21 <PAGE> 1169 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1170 BELK OF WASHINGTON, GA., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 23,237 $ 15,394 Accounts receivable, net.................................. 114,832 134,906 Merchandise inventory..................................... 223,316 216,616 Receivable from affiliates, net........................... -- 3,278 Refundable income taxes................................... 1,193 -- Deferred income taxes..................................... 2,230 -- Other..................................................... 11,031 10,396 ---------- ---------- Total current assets........................................ 375,839 380,590 Loans receivable from affiliates, net....................... 750,000 750,000 Investments................................................. 199 199 Property, plant and equipment, net.......................... 23,999 21,208 Deferred income taxes....................................... -- 390 Other noncurrent assets..................................... 5,488 4,776 ---------- ---------- $1,155,525 $1,157,163 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 53,439 $ 39,572 Payables to affiliates, net............................... 33,554 -- Deferred income taxes..................................... -- 2,276 Accrued income taxes...................................... -- 18,039 ---------- ---------- Total current liabilities................................... 86,993 59,887 Deferred income taxes....................................... 945 -- Other noncurrent liabilities................................ 15,283 15,508 ---------- ---------- Total liabilities........................................... 103,221 75,395 Shareholders' equity: Common stock.............................................. 241,400 241,400 Additional paid in capital................................ 1,911 1,911 Retained earnings......................................... 808,993 838,457 ---------- ---------- Total shareholders' equity.................................. 1,052,304 1,081,768 ---------- ---------- $1,155,525 $1,157,163 ========== ========== </TABLE> F-2 <PAGE> 1171 BELK OF WASHINGTON, GA., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales................................................... $872,110 $888,457 $843,575 Operating costs and expenses................................ 827,862 868,983 815,130 -------- -------- -------- Income from operations...................................... 44,248 19,474 28,445 -------- -------- -------- Other income (expense): Interest, net............................................. 18,679 33,276 58,652 Gain (loss) on disposal of property, plant and equipment.............................................. -- 500 -- Miscellaneous, net........................................ (310) 1,330 1,527 -------- -------- -------- Total other expense, net.................................... 18,369 35,106 60,179 -------- -------- -------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities............. 62,617 54,580 88,624 Income tax expense (benefit)................................ 12,622 10,710 22,950 -------- -------- -------- Earnings from continuing operations before equity in earnings of unconsolidated entities....................... 49,995 43,870 65,674 -------- -------- -------- Net earnings................................................ 49,995 43,870 65,674 Retained earnings at beginning of period.................... 787,548 801,333 808,993 Dividends paid.............................................. (36,210) (36,210) (36,210) -------- -------- -------- Retained earnings at end of period.......................... $801,333 $808,993 $838,457 ======== ======== ======== </TABLE> F-3 <PAGE> 1172 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1173 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1174 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 1175 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 1176 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 1177 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 1178 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 1179 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 1180 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY --------- ---------- ------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement..................... $ 843,575 $65,674 $29,972 $36,273 $1,081,768 Adjustments to eliminate less than wholly-owned subsidiaries.................................. -- -- -- -- -- --------- ------- ------- ------- ---------- Adjusted Shareholders' Statement................ $ 843,575 65,674 29,972 36,273 1,081,768 ========= ------- ------- ------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................. -- -- -- Gain/loss on sale of securities............... -- -- Impairment loss............................... -- -- -- Equity in earnings of unconsolidated subsidiaries................................ -- -- -- Gain/loss on discontinued operations.......... -- -- -- Adjustment to tax expense..................... -- -- -- -- ------- ------- ------- Total non-operating items....................... -- -- -- ------- ------- ------- Other Adjustments: Adjustment for dividends received from other Belk entities............................... -- -- -- Adjustment for ownership in other Belk entities.................................... (199) ------- ------- ------- ---------- Per Model....................................... $65,674 $29,972 $36,273 $1,081,569 ======= ======= ======= ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents..................... $ (15,392) Negative cash balances reclassified to accounts payable.......................... -- Receivables from affiliates, net............ (3,278) Loans receivable from affiliates, net....... (750,000) Liabilities Notes payable............................... -- Current installments of long-term debt...... -- Current portion of obligations under capital leases.................................... -- Payables to affiliates, net................. -- Long-term debt, excluding current installments.............................. -- Obligations under capital leases, excluding current portion........................... -- Loans payable to affiliates, net............ -- --------- Net debt (cash)................................. (768,670) Adjustments to eliminate less than wholly-owned subsidiaries.................................. -- --------- Per Model....................................... $(768,670) ========= </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1181 SUPPLEMENT NO. 27 <PAGE> 1182 BELK OF WASHINGTON, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 27 <PAGE> 1183 BELK OF WAYCROSS, GA., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Waycross, Ga., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 15.6892 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 964,071 shares of New Belk Class A Common Stock which will represent approximately 1.6068% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 1184 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1185 BELK OF WAYCROSS, GA., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF WAYCROSS, GA., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Waycross, Ga., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Georgia law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 15.6892 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1186 BELK OF WAYCROSS, GA., INC. SUPPLEMENT NO. 28 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 28 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF WAYCROSS, GA., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 22 INDEX TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS................................................ F-1 Unaudited Consolidated Balance Sheets..................... F-2 Unaudited Consolidated Statements of Earnings and Retained Earnings............................................... F-3 Condensed Notes to Unaudited Consolidated Historical Financial Statements................................... F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 1187 THE COMPANY The Company was incorporated as a Georgia corporation in 1954 as Belk-Hudson Company of Waycross, Ga., Inc. The Company changed its name to Belk of Waycross, Ga., Inc. on July 23, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina Corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Georgia law), will be converted, without any action on the part of the Shareholder, into the right to receive 15.6892 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 1188 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Georgia Business Corporation Code (the "GBCC"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the GBCC. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 150,000 shares of Common Stock. 3 <PAGE> 1189 Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the 4 <PAGE> 1190 holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the GBCC, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed if the corporation dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The GBCC permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 25%, or such greater or lesser percentages as may be provided in the articles of incorporation or bylaws, of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation, the bylaws or the provisions regarding meetings in the GBCC specify a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are 5 <PAGE> 1191 entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the GBCC, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the GBCC requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the GBCC) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting groups to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the GBCC, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the GBCC reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provided expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Further, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board shall have concurrent power, by vote of a majority of all of the directors, to make, alter, amend and rescind the Company Bylaws. The bylaws enacted by the Shareholders may be affected by action of the Company Board and vice versa; provided, however, the Company Board may not re-enact a bylaw which the Shareholders have repealed or altered, nor may it repeal a bylaw enacted by the Shareholders which limits the powers of the Company Board or enhances or protects the right of Shareholders, without the consent of the Shareholders. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special 6 <PAGE> 1192 meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the GBCC, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action or, if so provided in the articles of incorporation, by persons entitled to vote at a meeting shares having voting power to cast not less than the minimum number (or numbers, in the case of voting groups) of votes that would be necessary to authorize or take the action at which all shareholders entitled to vote were present and voted sign the written consent(s) describing such action. The Company Bylaws permit any action which may be taken at a meeting of the Shareholders to be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the persons who would be entitled to vote upon such action at a meeting and filed with the Secretary of the Company. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation or a bylaw approved by the shareholders, the GBCC permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors may be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. 7 <PAGE> 1193 The GBCC requires a corporation to have at least one director. The articles of incorporation or the bylaws may authorize the shareholders or the board of directors to change the number of directors. If the articles of incorporation or the bylaws establish a variable range for the size of directors, the number of directors may be changed, within the prescribed range, by the shareholders or, if the articles of incorporation so provide, by the board of directors. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, directors. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. Under the GBCC, a director must be a natural person and at least 18 years of age, but does not have to be a resident of Georgia or a shareholder of the corporation unless otherwise provided for in the articles of incorporation. The Company Articles do not require directors of the Company to be residents of Georgia or shareholders of the Company. The GBCC also allows the articles of incorporation or the bylaws to provide for additional qualifications of directors. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. Under the GBCC, the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the GBCC, unless the articles of incorporation or bylaws provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. 8 <PAGE> 1194 Cumulative Voting. Under both the DGCL and the GBCC, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the GBCC generally permits transactions involving a Georgia corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after required disclosure to them; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to any unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the GBCC, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and 9 <PAGE> 1195 (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the GBCC (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the GBCC or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him whether or not involving action in his official capacity. A Georgia corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company Bylaws authorize indemnification as provided in the GBCC. In addition, the Company Bylaws provide that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership, or as a trustee or administrator under an employee benefit plan. The Company will also indemnify a director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the GBCC, a director will not be personally liable to the Company or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The GBCC concerning the approval of mergers and share exchanges is similar in all material respects to the DGCL, except action by the shareholders of the surviving corporation is not required if the number and kind of shares outstanding immediately after the merger or share exchange, plus the number and kind of shares issuable as a result of the merger or share exchange and by the conversion of securities issued pursuant to the merger or share exchange or the exercise of rights and warrants issued pursuant to the merger or share exchange does not exceed the total number and kind of shares of the surviving or acquiring corporation authorized by its articles of incorporation immediately before the merger or share exchange. The GBCC and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the GBCC include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined in 10 <PAGE> 1196 the DGCL and the GBCC, "business combinations" generally encompass (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation, (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances, (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who (i) is the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. Under the GBCC, an "interested shareholder" is any person who owns 10% of the outstanding voting shares or is an affiliate of the corporation owning 10% of the outstanding voting shares within the prior two years, and a "continuing director" is a director not associated or affiliated with any interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (a) by persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. According to the GBCC, if at least three continuing directors serve on the board of directors, then those directors must unanimously approve the business combination. If three continuing directors do not serve on the board of directors, then 66 2/3% of the continuing directors must recommend the business combination and a majority of shareholders entitled to cast a vote must approve the business combination. Also, except under certain circumstances, no mergers may occur between a corporation and an interested shareholder within five years of the date the shareholder became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the GBCC provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes 11 <PAGE> 1197 an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The GBCC concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain any provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the GBCC, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporations; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the GBCC ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. To exercise appraisal rights under Article 13, a holder of Common Stock must (i) deliver to the Company before the taking of the vote of Shareholders on the Reorganization Agreement written notice of his intent to demand payment for his shares if the Merger is effected and (ii) not vote his shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these two requirements is not entitled to payment for his shares under Article 13. In addition, any Shareholder who returns a signed proxy but fails to provide instructions as to the manner in which such shares are to be voted will be deemed to have voted in favor of the Reorganization Agreement and will not be entitled to assert dissenters' rights of appraisal. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial Shareholder and he notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenter are determined as if the shares as to which he dissents and his other shares are registered in the names of different Shareholders. 12 <PAGE> 1198 If the Reorganization Agreement is approved at the Special Meeting, the Company must deliver a written dissenters' notice (the "Dissenters' Notice") to all Shareholders who satisfied the notice requirements of Article 13. The Dissenters' Notice must be sent within 10 days after the Effective Time and must (i) state where the demand for payment must be sent and where and when certificates for shares must be deposited, (ii) inform holders of uncertificated shares to what extent transfer of those shares will be restricted after the demand for payment is received, (iii) set a date by which the Company must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is delivered) and (iv) be accompanied by a copy of Article 13. A record Shareholder who receives the Dissenters' Notice must demand payment and deposit his certificates in accordance with the Dissenters' Notice. Such Shareholder will retain all other rights of a Shareholder until those rights are canceled or modified by the consummation of the Merger. A record Shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the Dissenters' Notice, is not entitled to payment for his shares under Article 13. Within 10 days of the later of the Effective Time or receipt of a payment demand, the Company must offer to pay each dissenting Shareholder who complied with Article 13 the amount the Company estimates to be the fair value of his shares, plus accrued interest from the Effective Time. Such offer of payment must be accompanied by (i) certain recent Company financial statements, (ii) the Company's estimate of the fair value of the shares and interest due, (iii) an explanation of how the interest was calculated, (iv) a statement of the dissenter's right to demand payment under Article 13 and (v) a copy of Article 13. If the Shareholder accepts the Company's offer by written notice to the Company within 30 days after the Company's offer, the Company must make payment within 60 days after the later of the making of the offer or the Effective Time. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, the Company must return the deposited certificates. If, after such return, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment procedure described above. A dissenting Shareholder may notify the Company in writing of his own estimate of the fair value of his shares and the interest due, and may demand payment of his estimate, if (i) he believes that the amount offered by the Company is less than the fair value of his shares or that the interest due has been calculated incorrectly or (ii) the Company, having failed to consummate the Merger, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to demand payment unless he notifies the Company of his demand in writing within 30 days after the Company makes or offers payment for his shares. If the Company does not offer payment within 10 days of the later of the Effective Time or receipt of a payment demand, then (i) the Shareholder may demand the financial statements and other information of the Company, and the Company must provide such information within 10 days after receipt of the written demand and (ii) the Shareholder may notify the Company of his own estimate of the fair value of his shares and the amount of interest due, and may demand payment of that estimate. If a demand for payment by a Shareholder remains unsettled, the Company must commence a nonjury equity valuation proceeding in the appropriate court, as specified in Article 13, within 60 days after receiving the payment demand and must petition the court to determine the fair value of the shares and accrued interest. If the Company does not commence a valuation proceeding within 60 days, the Company is required to pay each dissenting Shareholder whose demand remains unsettled, the amount demanded. The Company is required to make all dissenting Shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each dissenting Shareholder. The court may appoint appraisers to receive evidence and to recommend a decision on fair value. Each dissenting Shareholder made a party to the proceeding is entitled to judgment for the fair value of his shares plus interest to the date of judgment. In an appraisal proceeding commenced under Article 13, the court must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against the Company, except that the court may assess the costs against all or some of the dissenting Shareholders to the extent the court finds they acted arbitrarily, vexatiously or not in good faith in 13 <PAGE> 1199 demanding payment under Article 13. The court also may assess the fees and expenses of attorneys and experts for the respective parties against the Company if the court finds the Company did not substantially comply with the requirements of Article 13, or against either the Company or a dissenting Shareholder if the court finds that such party acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by Article 13. If the court finds that the services of the attorneys for any dissenting Shareholder were of substantial benefit to other dissenting Shareholders similarly situated, and that the fees for those services should not be assessed against the Company, the court may award those attorneys reasonable fees out of the amounts awarded the dissenting Shareholders who were benefited. No action by any dissenting Shareholder to enforce dissenters' rights may be brought more than three years after the Effective Time, regardless of whether notice of the Merger and of the right to dissent was given by the Company in compliance with the provisions of Article 13. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on the November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1200 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $54,396,600 $54,396,600 0.6 $11,124,680 $21,513,280 EBITDA............... 5,772,420 5,545,139 7 11,124,680 27,691,293 EBIT................. 4,557,166 4,329,885 10 11,124,680 32,174,170 Net Income........... 2,445,550 2,297,920 15 -- 34,468,800 Book Equity.......... 17,935,978 9,885,267 1 -- 9,885,267 </TABLE> 15 <PAGE> 1201 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk of Albany, Ga., Inc. 37.3472% X $ 6,361,246 = $ 2,375,747 Gallant-Belk Company 4.2230 X 31,711,816 = 1,339,190 Belk's Department Store of Brevard, N.C. Incorporated 20.5833 X 3,632,918 = 747,774 Belk Department Store of Charleston, S.C., Inc. 8.0983 X 21,169,909 = 2,524,233 Belk of Dalton, Ga., Inc. 9.1049 X 8,605,017 = 783,478 Belk-Lindsey Stores, Inc. .9672 X 76,945,152 = 744,214 Belk of Walterboro, S.C., Inc. 17.8170 X 2,473,319 = 440,671 Belk-Simpson Co., of Bainbridge, Ga., Inc. 11.1111 X 3,606,673 = 400,741 ----------- Total $ 9,356,048 =========== Relative Operating Value of Company $34,468,800 Relative Operating Value of Other Companies Owned by Company + 9,356,048 ----------- Total Relative Value of Company = $43,824,848 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk's Department Store of Albany, Georgia .1179% X $43,824,848 = $ 51,669 Belk Enterprises, Inc. 1.5025 X 43,824,848 = 658,468 Belk of Dalton, Ga., Inc. 1.3652 X 43,824,848 = 598,297 Belk of LaGrange, Ga., Inc. 1.3163 X 43,824,848 = 576,866 Belk of Orangeburg, S.C., Inc. 3.5289 X 43,824,848 = 1,546,535 Belk of Thomaston, Ga., Inc. 49.3901 X 43,824,848 = 21,645,137 Belk of Toccoa, Ga., Inc. .4096 X 43,824,848 = 179,507 ----------- Total $25,256,479 =========== Total Relative Value of Company $43,824,848 Total Relative Value of Company Owned by Other Belk Companies - 25,256,479 ----------- Net Relative Value of Company = $18,568,369 =========== </TABLE> 16 <PAGE> 1202 The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $18,568,369 / $1,155,623,145 = 1.6068% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (1.6068% X 60,000,007) / 61,448 = 15.6892 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 1203 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 16.86 Book value per share(2)................................... 123.67 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 14.89 Book value per share...................................... 198.66 </TABLE> - --------------- (1) Based on 145,029 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 145,029 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 1204 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $57,121 $54,648 $54,397 Net income.................................................. 1,976 2,194 2,446 Per common share Net income (loss)(1)...................................... 13.63 15.13 16.86 Dividends................................................. 4.00 4.00 4.00 Book value(2)............................................. 98.04 110.46 123.67 Total assets................................................ 29,474 26,844 33,059 Shareholders' equity........................................ 14,218 16,020 17,936 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $36,791 $37,870 Income from operations...................................... 2,157 3,082 </TABLE> - --------------- (1) Based on 145,029 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 145,029 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 19 <PAGE> 1205 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. The decrease in other income (expense), net to an expense of 0.8% of sales in fiscal year 1997 compared to an expense of 1.2% in 1996 is partially attributable to a $341,000 gain on sale of property related to the sale of the Company's Valdosta Mall out-parcel site recognized in fiscal year 1997. Other income (expense), net increased to an expense of 1.2% of sales in fiscal year 1996 from an expense of 0.1% in 1995 due to a $947,000 gain on the sale of equipment realized in fiscal year 1995. BUSINESS OF THE COMPANY General. The Company operates eight retail department stores in Hatcher Point Mall in Waycross, Glynn Place Mall in Brunswick, downtown Douglas, Sunset Plaza Shopping Center in Moultrie, Kings Bay Village in St. Mary's, Gateway Shopping Center in Thomasville, Tifton Mall in Tifton and Valdosta Mall in Valdosta, Georgia. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The stores are managed out of the Bergren group office in Gainesville, Florida. The Company has one wholly-owned subsidiary, Belk of St. Augustine Fla., Inc. ("Belk St. Augustine"). Belk St. Augustine operates a retail department store in Ponce de Leon Mall in St. Augustine, Florida. The store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Bergren group office in Gainesville, Florida. Facilities. The Company operates eight stores, of which five are leased under long-term leases and three are owned by the Company. The leases have termination dates ranging from 2000 through 2011. The floor space of the leased buildings ranges from 44,000 to 68,000 square feet. The floor space of the owned buildings ranges from 22,000 to 80,000 square feet. The 80,000 square feet building owned by the Company in Valdosta was expanded by 8,400 feet in 1997, pursuant to a ten-year lease, increasing the size of the store to 88,400 square feet. The Company believes the facilities are adequate to meet its current needs with the exception of the downtown Douglas location and the Thomasville location. With respect to the Thomasville store, the Board of Directors has approved an expansion of 12,000 square feet. With respect to the Douglas store, management of the Company believes that a relocation of the existing downtown store to a shopping center site may be necessary to the long-term viability of the Company's business in Douglas. Belk St. Augustine leases its store building under a long-term lease. The store lease has a termination date of 2000. The floor space of the leased building is 50,000 square feet. The Company believes the store building is adequate to meet its current needs. Competition. Specific competitors in the Company's markets include Penney, Goody's and Wal-Mart. 20 <PAGE> 1206 Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 21 <PAGE> 1207 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)........................................... 107,740 74.3% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(e)(f)................................................. 94,931 65.5% H. W. McKay Belk (Director and Executive Officer) (b)(e)(g)................................................. 95,190 65.6% John R. Belk (Director and Executive Officer) (b)(e)(h)..... 94,716 65.3% Henderson Belk (Director) (c)(d)............................ 1,382 1.0% Sarah Belk Gambrell (c)(d).................................. 17,658 12.2% Leroy Robinson (Director) (b)............................... 8,406 5.8% E. O. Hudson, Jr. (Director and Executive Officer).......... 0 * Byron L. Bergren (Executive Officer)........................ 0 * James Madden (Executive Officer)............................ 0 * M. F. Campbell (Executive Officer).......................... 0 * Katherine McKay Belk (b).................................... 9,237 6.2% Katherine Belk Morris (b)(i)................................ 11,215 7.7% Thomas M. Belk, Trustee U/A dated September 15, 1993........ 8,406 5.8% Belk of Thomaston, Ga., Inc................................. 71,630 49.4% All Directors and Executive Officers as a group (8 persons).................................................. 116,618 80.4% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; M. F. Campbell, 1181 St. Augustine Road, Valdosta, Ga. 31601; Byron L. Bergren and James Madden -- 1312 N. Main Street, Gainesville, Fla. 32601; E. O. Hudson, Jr. -- P. O. Box 968, Orangeburg, S.C. 29116; Belk of Thomaston, Ga., Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 4,825 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 8,406 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 550 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 22 <PAGE> 1208 (d) Includes 830 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (e) Includes 5,118 shares held by Belk of Orangeburg, S.C., Inc., 1,909 shares held by Belk of LaGrange, Ga., Inc., 594 shares held by Belk of Toccoa, Ga., Inc., 171 shares held by Belk's Department Store of Albany, Georgia, 1,980 shares held by Belk of Dalton, Ga., Inc., 2,179 shares held by Belk Enterprises, Inc. and 71,630 shares held by Belk of Thomaston, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (f) Includes 812 held by Thomas M. Belk, Jr. as custodian for his minor children and 203 shares held by his wife, Sarah F. Belk. (g) Includes 1,015 shares held by H. W. McKay Belk as custodian for his minor children and 203 shares held by his wife, Nina F. Belk. (h) Includes 609 shares held by John R. Belk as custodian for his minor children and 203 shares held by his wife, Kimberly D. Belk. (i) Includes 609 shares held by Katherine Belk Morris as custodian for her minor children and 203 shares held by her husband, Charles Walker Morris. 23 <PAGE> 1209 INDEX TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Consolidated Balance Sheets....................... F-2 Unaudited Consolidated Statements of Earnings and Retained Earnings.................................................. F-3 Condensed Notes to Unaudited Consolidated Historical Financial Statements...................................... F-4 </TABLE> F-1 <PAGE> 1210 BELK OF WAYCROSS, GA., INC. UNAUDITED CONSOLIDATED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 362,057 $ 83,211 Accounts receivable, net.................................. 7,342,357 8,912,508 Merchandise inventory..................................... 11,927,676 11,635,459 Deferred income taxes..................................... 97,816 96,081 Other..................................................... 460,151 388,311 ----------- ----------- Total current assets........................................ 20,190,057 21,115,570 Loans receivable from affiliates, net....................... 32,258 32,258 Investments................................................. 2,232,388 8,050,711 Property, plant and equipment, net.......................... 4,203,613 3,646,028 Deferred income taxes....................................... -- 60,424 Other noncurrent assets..................................... 186,068 154,136 ----------- ----------- $26,844,384 $33,059,127 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt.................... $ 1,600,000 $ 7,172,924 Accounts payable and accrued expenses..................... 3,259,942 3,212,570 Payables to affiliates, net............................... 2,460,534 2,594,282 Accrued income taxes...................................... 158,387 210,880 ----------- ----------- Total current liabilities................................... 7,478,863 13,190,656 Deferred income taxes....................................... 20,895 -- Long-term debt, excluding current installments.............. 2,900,000 1,472,923 Other noncurrent liabilities................................ 424,547 459,570 ----------- ----------- Total liabilities........................................... 10,824,305 15,123,149 Shareholders' equity: Common stock.............................................. 14,502,900 14,502,900 Retained earnings......................................... 1,517,179 3,433,078 ----------- ----------- Total shareholders' equity.................................. 16,020,079 17,935,978 ----------- ----------- $26,844,384 $33,059,127 =========== =========== </TABLE> F-2 <PAGE> 1211 BELK OF WAYCROSS, GA., INC. UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $57,298,940 $55,034,298 $54,956,230 Less: Leased Sales...................................... 177,639 386,655 559,630 ----------- ----------- ----------- Net sales............................................... 57,121,301 54,647,643 54,396,600 Operating costs and expenses............................ 54,126,698 50,543,138 50,054,312 Impairment loss......................................... -- -- 187,524 ----------- ----------- ----------- Income from operations.................................. 2,994,603 4,104,505 4,154,764 ----------- ----------- ----------- Other income (expense): Interest, net......................................... (588,003) (713,619) (792,200) Dividend income....................................... 7,770 7,770 7,770 Gain (loss) on disposal of property, plant and equipment.......................................... 854,224 (465) 341,059 Miscellaneous, net.................................... (303,086) 47,822 (12,403) ----------- ----------- ----------- Total other expense, net................................ (29,095) (658,492) (455,774) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 2,965,508 3,446,013 3,698,990 Income tax expense (benefit)............................ 989,300 1,245,094 1,296,295 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 1,976,208 2,200,919 2,402,695 Equity in earnings (loss) of unconsolidated entity, net of tax................................................ -- (6,762) 42,855 ----------- ----------- ----------- Net earnings............................................ 1,976,208 2,194,157 2,445,550 Retained earnings at beginning of period................ (1,680,957) (284,865) 1,517,179 Dividends paid.......................................... (580,116) (580,116) (580,116) Retained earnings adjustments........................... -- 188,003 50,465 ----------- ----------- ----------- Retained earnings at end of period...................... $ (284,865) $ 1,517,179 $ 3,433,078 =========== =========== =========== </TABLE> F-3 <PAGE> 1212 BELK-HUDSON COMPANY, OF WAYCROSS, GA., INC. AND SUBSIDIARY CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1997, 1996, and 1995 ended on February 1, 1997, February 3, 1996, and January 31, 1995 respectively. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. F-4 <PAGE> 1213 BELK-HUDSON COMPANY, OF WAYCROSS, GA., INC. AND SUBSIDIARY CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8)The Company's term loan agreement contains, among other provisions and covenants, restrictions relating to the creation of additional funded debt, except as permitted, and the disposal, expansion or purchase of fixed assets, except as permitted. Under the most restrictive of these provisions, the Company must maintain consolidated net working capital, as defined, of not less than $12,000,000; and a consolidated tangible net worth, as defined, of not less than $12,000,000. The Company was not in compliance with the working capital restriction as of February 1, 1997. The Company has obtained waivers for the out of compliance condition. (9) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (10) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. F-5 <PAGE> 1214 BELK-HUDSON COMPANY, OF WAYCROSS, GA., INC. AND SUBSIDIARY CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (11) RETAINED EARNINGS ADJUSTMENT Adjustment to Retained Earnings of the Company at February 1, 1997, is due to the Company's share of Belk's Department Store of Albany Georgia's increase in the market value of marketable securities. An adjustment was made during fiscal 1966 to correct an over accrual of a sales tax liability made in the prior year on the books of Belk-Hudson Co. of St. Augustine, Fla., Inc. a wholly owned subsidiary of the Company. This prior period adjustment resulted in an increase in retained earnings of $124,929, net of applicable income taxes. Adjustment to Retained Earnings of the Company at February 3, 1996 is due to placing Belk's Department Store of Albany, Georgia on the equity method of accounting. (12) RECLASSIFICATIONS Certain 1995 and 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total stockholders' equity or net earnings as previously reported. F-6 <PAGE> 1215 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 14-2-1301. DEFINITIONS. As used in this article, the term: (1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302. (3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327. (5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances. (7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (8) "Shareholder" means the record shareholder or the beneficial shareholder. 14-2-1302. RIGHT TO DISSENT. (a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger; or (B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; A-1 <PAGE> 1216 (3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; (E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or (F) Cancels, redeems, or repurchases all or part of the shares of the class; or (5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's right. (c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless: (1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or (2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise. 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 1217 PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 14-2-1320. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken. 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record shareholder who wishes to assert dissenters' rights: (1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article. 14-2-1322. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Code Section 14-2-1321. (b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and (4) Be accompanied by a copy of this article. 14-2-1323. DUTY TO DEMAND PAYMENT. (a) A record shareholder sent a dissenters' notice described in Code Section 14-2-1322 must demand payment and deposit his certificates in accordance with the terms of the notice. (b) A record shareholder who demands payment and deposits his shares under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. A-3 <PAGE> 1218 14-2-1324. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 14-2-1325. OFFER OF PAYMENT. (a) Except as provided in Code Section 14-2-1327, within ten days of the later of the date the proposed corporate action is taken or receipt of a payment demand, the corporation shall by notice to each dissenter who complied with Code Section 14-2-1323 offer to pay to such dissenter the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest. (b) The offer of payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under Code Section 14-2-1327; and (5) A copy of this article. (c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond within said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later. 14-2-1326. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure. 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or (2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing A-4 <PAGE> 1219 under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325. (c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325: (1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and (2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due. PART 3. JUDICIAL APPRAISAL OF SHARES 14-2-1330. COURT ACTION. (a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgment. 14-2-1331. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Code Section 14-2-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, but not including fees and expenses of attorneys and experts for the respective parties. The court shall assess the costs against the corporation, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Code Section 14-2-1327. A-5 <PAGE> 1220 (b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. 14-2-1332. LIMITATION OF ACTIONS. No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322. A-6 <PAGE> 1221 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ---------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................. $54,396,600 $2,445,551 $4,557,166 $5,772,420 $17,935,978 Adjustments to eliminate less than wholly-owned subsidiaries................. -- -- -- -- -- ----------- ---------- ---------- ---------- ----------- Adjusted Shareholders' Statement............ 54,396,600 2,445,551 4,557,166 5,772,420 17,935,978 =========== ---------- ---------- ---------- ----------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............. (221,536) (341,059) (341,059) Gain/loss on sale of securities........... -- -- -- Impairment loss........................... 121,807 187,524 187,524 Equity in earnings of unconsolidated subsidiaries............................ (42,855) (65,976) (65,976) Gain/loss on discontinued operations...... -- -- -- Adjustment to tax expense................. -- -- -- -- ---------- ---------- ---------- Total non-operating items................... (142,584) (219,511) (219,511) ---------- ---------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities..................... (5,047) (7,770) (7,770) Adjustment for ownership in other Belk entities................................ (8,050,711) ---------- ---------- ---------- ----------- Per Model................................... $2,297,920 $4,329,885 $5,545,139 $ 9,885,267 ========== ========== ========== =========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................. $ (83,213) Negative cash balances reclassified to accounts payable...................... 22 Receivables from affiliates, net........ -- Loans receivable from affiliates, net... (32,258) Liabilities Notes payable........................... -- Current installments of long-term debt.................................. 7,172,924 Current portion of obligations under capital leases........................ -- Payables to affiliates, net............. 2,594,282 Long-term debt, excluding current installments.......................... 1,472,923 Obligations under capital leases, excluding current portion............. -- Loans payable to affiliates, net........ -- ----------- Net debt (cash)............................. 11,124,680 Adjustments to eliminate less than wholly-owned subsidiaries................. -- ----------- Per Model................................... $11,124,680 =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1222 SUPPLEMENT NO. 28 <PAGE> 1223 BELK OF WAYCROSS, GA., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 28 <PAGE> 1224 BELK-SIMPSON COMPANY OF CORBIN, KENTUCKY, INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Simpson Company of Corbin, Kentucky, Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Kentucky law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 107.7843 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 284,550 shares of New Belk Class A Common Stock which will represent approximately 0.4743% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1225 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1226 BELK-SIMPSON COMPANY OF CORBIN, KENTUCKY, INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-SIMPSON COMPANY OF CORBIN, KENTUCKY, INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Simpson Company of Corbin, Kentucky, Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Kentucky law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 107.7843 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1227 BELK-SIMPSON COMPANY OF CORBIN, KENTUCKY, INCORPORATED SUPPLEMENT NO. 29 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 29 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-SIMPSON COMPANY OF CORBIN, KENTUCKY, INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 1228 THE COMPANY The Company was incorporated as a Kentucky corporation in 1947. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights under Kentucky law), will be converted, without any action on the part of the Shareholder, into the right to receive 107.7843 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1229 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Kentucky Business Corporation Act (the "KBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the KBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 6,720 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer 3 <PAGE> 1230 restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution, as the case may be, New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common 4 <PAGE> 1231 Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the KBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The KBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 33 1/3% (or such higher or lower percentage as is contained in the articles of incorporation) of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the KBCA, unless the articles of incorporation or the KBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or 5 <PAGE> 1232 alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the KBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the KBCA requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the KBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power, to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the KBCA, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the KBCA reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. The KBCA provides that, except as provided in the articles of incorporation, action to be taken at a shareholders' meeting may be taken without a meeting and without prior notice, if the action is taken by all the shareholders entitled to vote on the action. 6 <PAGE> 1233 If the articles of incorporation so provide, any action except the election of directors, may be taken without a meeting and without prior notice of the holders of at least 80% (or such higher percentage required by the KBCA or the articles of incorporation) of the votes entitled to be cast on such action sign the written consent(s) describing such action. The Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the KBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The KBCA requires a corporation to have at least one director. The number of directors is set by the articles of incorporation or the bylaws. If a board of directors has power to fix or change the number of directors, the board of directors may increase or decrease by 30% or less the number of directors last approved by the shareholders, but only the shareholders may increase or decrease by more than 30% the number of directors last approved by the shareholders. If the articles of incorporation or bylaws establish a variable range for the size of the board of directors, the number of directors may be changed, within the prescribed range, by the shareholders or by the board of directors. After shares are issued, only the shareholders may change the 7 <PAGE> 1234 range for the size of the board or change from a fixed to a variable range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. The Company Articles provides that the Company Board shall consist of three directors. Qualifications of Directors. The DGCL allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The KBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of Kentucky or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Articles and Company Bylaws do not require directors of the Company to be residents of Kentucky or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The KBCA provides that the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company does not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the KBCA, the shareholders may remove one or more directors with or without cause, unless the articles of incorporation provide that directors may be removed only for cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. A director may not be removed if the number of votes sufficient to elect him under cumulative voting is voted against his removal. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under the DGCL, cumulative voting of stock applies only when so provided in the certificate of incorporation. The New Belk Certificate does not provide for cumulative voting. The Constitution of the Commonwealth of Kentucky guarantees cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a 8 <PAGE> 1235 majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the KBCA generally permits transactions involving a Kentucky corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the board of directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and they authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the KBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the KBCA (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the KBCA or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. Unless limited by its articles of incorporation, a corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to 9 <PAGE> 1236 which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The KBCA concerning prohibiting the elimination or limitation of a director's personal, monetary liability is equivalent to the DGCL. The Company Bylaws authorize indemnification as provided in the KBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The KBCA concerning the approval of mergers or share exchanges is similar in all material respects to the DGCL, except that under the KBCA the surviving company's shareholders must approve a merger or share exchange if, after giving effect to the transaction, their interest in the participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The KBCA and DGCL provisions concerning the approval of the sale of all or substantially all of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the KBCA contain business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL and KBCA, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. 10 <PAGE> 1237 The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The KBCA defines an "interested shareholder" as any person who (i) is the direct or indirect beneficial owner of at least 10% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate of the corporation and within five years of the date in question was the direct or indirect owner of at least 10% of the voting power of any class or series of the then outstanding stock of such corporation. The KBCA defines a "continuing director" as any member of the board of directors that is not an affiliate or associate of an interested shareholder or any of its affiliates, other than the corporation, and who was a director of the corporation prior to the time the interested shareholder became an interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. The KBCA provides that in addition to any vote otherwise required by the KBCA or the articles of incorporation, a business combination must be approved by a majority of independent members of the board of directors who are also continuing directors, or the business combination must be approved by 80% of the votes entitled to be cast by outstanding shares of voting stock and two-thirds of the votes entitled to be cast by holders of voting stock other than voting stock beneficially owned by an interested shareholder or an associate or affiliate of an interested shareholder. Furthermore, under the KBCA no business combination may occur between the corporation and an interested shareholder for five years after the date on which such person became an interested shareholder unless such person became an interested shareholder before March 28, 1986 or unless a majority of the independent directors approved the business combination before the date on which such person became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the KBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New 11 <PAGE> 1238 Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The KBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company has not granted preemptive rights to any Shareholder. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the KBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Sections 271B.13-200 to 271B.13-280 of the KBCA of the Kentucky Revised Statutes has the right to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Section 271B.13-010, et seq., of the KBCA ("Subtitle 13") and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Subtitle 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN SUBTITLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. A Shareholder may dissent as to less than all the shares registered in his name, but must dissent as to all shares beneficially owned by any one person. In that event, his rights shall be determined as if the shares to which he has dissented and the other shares registered in his name were registered in the names of different Shareholders. A Shareholder desiring to pursue rights of appraisal must fulfill each of the following requirements: (1) The dissenting Shareholder must file a written objection to the Reorganization Agreement with the Company at or prior to the Special Meeting. Such objection must be delivered to the Company at 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel. (2) The dissenting Shareholder must not vote in favor of the Reorganization Agreement at the Special Meeting. A failure to vote against the Reorganization Agreement will not constitute a waiver of a dissenting Shareholder's appraisal rights under Subtitle 13. 12 <PAGE> 1239 (3) The dissenting Shareholder must make written demand upon the Company for payment of the fair value of the dissenting Shareholder's shares. The Company will deliver a written dissenters' notice (the "Dissenters' Notice") to the dissenting Shareholder within 10 days after the Special Meeting at which the Reorganization Agreement was approved which will (i) state where dissenting Shareholders must (a) send the Payment Demand (as defined below) and where and when they must (b) deposit their common stock certificates (the "Certificates"), (ii) inform holders of uncertificated shares of the extent of any restrictions on the transferability of such shares, (iii) be accompanied by a form for demanding payment that includes the date of the first announcement to the news media or to Shareholders of the terms of the proposed Merger and requires that the dissenting Shareholder certify whether he acquired beneficial ownership of the shares before that date, (iv) set a date by which the Company must receive the Payment Demand, which may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is delivered, and (v) be accompanied by a copy of Subtitle 13. (4) A dissenting Shareholder who is sent the Dissenters' Notice must (i) certify whether he acquired beneficial ownership of the shares before the date of the first announcement to the news media or to Shareholders of the terms of the proposed Merger and (ii) demand payment and deposit the Certificates by the date specified in the Dissenters' Notice. Any dissenting Shareholder who makes a demand for payment and deposits the Certificates as required by Subtitle 13 will retain all other rights of a Shareholder until such rights are canceled or modified by the Merger. Any Shareholder failing to make demand for payment by the date specified in the Dissenters' Notice will not be entitled to payment under Subtitle 13. Any dissenting Shareholder who has fulfilled the foregoing requirement of Subtitle 13 will be paid by the Company, upon surrender of the Certificate or Certificates representing the dissenting shares, the fair value of the dissenting shares as of the day prior to the date of the Special Meeting at which the Reorganization Agreement was approved, excluding any appreciation or depreciation in anticipation of the Merger plus accrued interest. Subtitle 13 requires the payment to be accompanied by (i) certain of the Company's financial statements, (ii) a statement of the Company's estimate of fair value of the shares and explanation of how the interest was calculated, (iii) notification of rights to demand payment and (iv) a copy of Subtitle 13. The Company may delay any payments with respect to any shares (the "after-acquired shares") held by a dissenting Shareholder which were not held by such Shareholder on [ ] , the date of the first public announcement of the terms of the Reorganization Agreement. When payments are so withheld, the Company must send to the holder of the after-acquired shares after the Merger an offer to pay the holder an amount equal to Company's estimate of their fair value plus accrued interest, together with an explanation of the calculation of interest and a statement of the holder's right to demand payment. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing Certificates, the Company must return the deposited Certificates. If, after returning deposited Certificates, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment demand procedure. If the dissenting Shareholder believes that the amount paid by the Company or offered by the Company is less than the fair value of his shares or that the interest due is calculated incorrectly, or if the Company fails to make payment (or, if the Merger has not consummated, the Company does not return the deposited Certificates) within 60 days after the date set in the Dissenters' Notice, then the dissenting Shareholder may, within 30 days after the Company made or offered payment for the shares or failed to pay for the shares, notify the Company in writing of his own estimate of the fair value of such shares (including interest due) and demand payment of such estimate (less any payment previously received). Failure to notify the Company in writing of a demand for payment within 30 days after the Company made or offered payment for such shares will constitute a waiver of the right to demand payment. If the Company and the dissenting Shareholder cannot agree on a fair price within 60 days after the Company receives such a demand for payment, Subtitle 13 provides that the Company will institute judicial proceedings in the appropriate court, as specified in Subtitle 13 (the "Court"), to fix (i) the fair value of the shares immediately before consummation of the Merger, excluding any appreciation or depreciation in 13 <PAGE> 1240 anticipation of the Merger and (ii) the accrued interest. The "fair value" of the Common Stock could be more than, the same as, or less than that produced by the Exchange Ratio. The Company must make all dissenters whose demands remain unsettled parties to the proceeding and all such parties must be served with a copy of the petition. The Court may, in its discretion, appoint an appraiser to receive evidence and recommend a decision on the question of fair value. The Court is required to issue a judgment for the amount, if any, by which the fair value of the shares, as determined by the Court, plus accrued interest, exceeds the amount paid by the Company or for the fair value, plus accrued interest, of his after-acquired shares for which the Company elected to withhold payment. If the Company does not institute such proceeding within such 60 day period, the Company must pay each dissenting Shareholder whose demand remains unsettled the respective amount demanded by each Shareholder. The Court will assess the costs and expenses of such proceeding (including reasonable compensation for and the expenses of the appraiser appointed by the Court) against the Company, except that the Court may assess such costs and expenses as it deems appropriate against any or all of the dissenting Shareholders if it finds that their demand for additional payment was arbitrary, vexatious or otherwise not in good faith in demanding payment from the Company. The Court may also assess the fees and expenses of counsel and experts for the respective parties against (i) the Company, if the Court finds that the Company did not comply with the material requirements of Subtitle 13, or (ii) either the Company or the dissenting Shareholders, if either acted arbitrarily, vexatiously or otherwise not in good faith. If the Court finds that the services of counsel for any dissenting Shareholders were of substantial benefit to other dissenting Shareholders, the court may award these counsel reasonable attorneys fees to be paid out of the amounts awarded to the dissenting Shareholders who were benefitted. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common 14 <PAGE> 1241 Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on the November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $6,329,468 $6,329,468 0.6 $(1,627,330) $5,425,011 EBITDA............... 757,083 755,498 7 (1,627,330) 6,915,816 EBIT................. 536,377 534,792 10 (1,627,330) 6,975,250 Net Income........... 373,798 372,802 15 -- 5,592,030 Book Equity.......... 6,277,447 6,277,135 1 -- 6,277,135 </TABLE> 15 <PAGE> 1242 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ----------- Total N/A =========== Relative Operating Value of Company $ 6,975,250 Relative Operating Value of Other Companies Owned by Company + -- ----------- Total Relative Value of Company = $ 6,975,250 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 10.9524% X $ 6,975,250 = $ 763,957 Belk Enterprises, Inc. 10.4762% X 6,975,250 = 730,741 ----------- Total $ 1,494,698 =========== Total Relative Value of Company $ 6,975,250 Total Relative Value of Company Owned by Other Belk Companies - 1,494,698 ----------- Net Relative Value of Company = $ 5,480,552 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 5,480,552 / $1,155,623,145 = .4743% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.4743% X 60,000,007) / 2,640 = 107.7843 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1243 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 111.25 Book value per share(2)................................... 1,868.29 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 102.31 Book value per share...................................... 1,364.76 </TABLE> - --------------- (1) Based on 3,360 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 3,360 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1244 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 6,094 $ 6,052 $ 6,329 Net income.................................................. 340 426 374 Per common share Net income (loss)(1)...................................... 101.13 126.83 111.25 Dividends................................................. 50.00 50.00 50.00 Book value(2)............................................. 1,717.86 1,804.79 1,868.29 Total assets................................................ 6,406 6,743 6,932 Shareholders' equity........................................ 5,772 6,064 6,277 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $4,196 $4,184 Income from operations...................................... 216 146 </TABLE> - --------------- (1) Based on 3,360 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 3,360 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1245 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Trade Mart Shopping Center in Corbin, Kentucky. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Kuhne/Greiner group office in Greenville, South Carolina. The Company also owns approximately $200,000 in marketable securities. Facilities. The Company owns the store property and building, which contains approximately 54,000 square feet of floor area, together with a portion of the adjacent parking area. The store was remodeled in 1996. The Company believes the facility is adequate for its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Goody's and Penney. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a materially adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1246 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 964 28.7% Thomas M. Belk, Jr. (Executive Officer) (a)(c)(d)........... 848 25.2% H. W. McKay Belk (Executive Officer) (a)(c)(d).............. 848 25.2% John R. Belk (Director and Executive Officer) (a)(c)(d)..... 848 25.2% Henderson Belk (Director) (b)............................... 32 1.0% Sarah Belk Gambrell (Director and Executive Officer) (b).... 708 21.1% John A. Kuhne (Director) (f)................................ 480 14.3% Lucy S. Kuhne (e)........................................... 640 19.0% Mary E. S. Hanahan.......................................... 480 14.3% R. E. Greiner (Executive Officer)........................... 0 * Welch Bostick, Jr. (Executive Officer)...................... 0 * Kate McArver Simpson........................................ 204 6.1% Belk Enterprise, Inc........................................ 352 10.5% J.V. Properties............................................. 368 10.9% All Directors and Executive Officers as a group (8 persons).................................................. 2,780 82.7% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Henderson Belk -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; John A. Kuhne, Lucy S. Kuhne, Kate McArver Simpson, R. E. Greiner and Welch Bostick, Jr. -- 14 S. Main Street, Greenville, S.C. 29601; Mary E. S. Hanahan -- P.O. Box 1294, Charleston, S.C. 29402; Belk Enterprises, Inc. and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 68 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 32 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Includes 352 shares held by Belk Enterprises, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of such corporation, under authority given by the directors of such corporation at the annual meeting of directors held in March, 1997. The Executive 20 <PAGE> 1247 Committee of such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Includes 368 shares of J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (e) Includes 160 shares held by the Estate of William Henry Belk Simpson. Voting and investment power is shared by the Personal Representatives, who are Kate Simpson, Lucy Kuhne and Claire Russo. (f) Includes shares held by John A. Kuhne's wife, Lucy S. Kuhne. 21 <PAGE> 1248 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1249 BELK-SIMPSON COMPANY OF CORBIN, KENTUCKY, INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 105,422 $ 124,586 Accounts receivable, net.................................. 942,497 1,114,509 Merchandise inventory..................................... 1,120,436 1,244,853 Receivable from affiliates, net........................... 3,332,256 1,495,281 Refundable income taxes................................... -- 12,767 Deferred income taxes..................................... 19,764 17,576 Other..................................................... 58,473 52,378 ---------- ---------- Total current assets........................................ 5,578,848 4,061,950 Loans receivable from affiliates, net....................... 7,464 7,464 Investments................................................. 241,673 256,984 Property, plant and equipment, net.......................... 889,463 2,584,017 Other noncurrent assets..................................... 25,687 21,434 ---------- ---------- $6,743,135 $6,931,849 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 435,031 $ 396,912 Accrued income taxes...................................... 60,307 33,557 ---------- ---------- Total current liabilities................................... 495,338 430,469 Deferred income taxes....................................... 18,380 38,353 Other noncurrent liabilities................................ 165,321 185,580 ---------- ---------- Total liabilities........................................... 679,039 654,402 Shareholders' equity: Common stock.............................................. 336,000 336,000 Net unrealized gain (loss) on investments, net of income taxes.................................................. 80,375 87,928 Retained earnings......................................... 5,647,721 5,853,519 ---------- ---------- Total shareholders' equity.................................. 6,064,096 6,277,447 ---------- ---------- $6,743,135 $6,931,849 ========== ========== </TABLE> F-2 <PAGE> 1250 BELK-SIMPSON COMPANY OF CORBIN, KENTUCKY, INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $6,094,039 $6,051,615 $6,329,468 Operating costs and expenses............................... 5,645,700 5,539,376 5,806,986 ---------- ---------- ---------- Income from operations..................................... 448,339 512,239 522,482 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 98,147 141,128 58,488 Dividend income.......................................... 5,081 5,495 5,996 Gain (loss) on disposal of property, plant and equipment............................................. 543 25 60 Gain (loss) on sale of securities........................ 5,391 30,921 1,525 Miscellaneous, net....................................... (15,194) (4,099) 6,314 ---------- ---------- ---------- Total other expense, net................................... 93,968 173,470 72,383 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 542,307 685,709 594,865 Income tax expense (benefit)............................... 202,506 259,569 221,067 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 339,801 426,140 373,798 ---------- ---------- ---------- Net earnings............................................... 339,801 426,140 373,798 Retained earnings at beginning of period................... 5,217,780 5,389,581 5,647,721 Dividends paid............................................. (168,000) (168,000) (168,000) ---------- ---------- ---------- Retained earnings at end of period......................... $5,389,581 $5,647,721 $5,853,519 ========== ========== ========== </TABLE> F-3 <PAGE> 1251 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1252 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1253 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 23, CHAPTER 271B BUSINESS CORPORATIONS STATE OF KENTUCKY SUBTITLE 13. DISSENTERS' RIGHTS RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 271B.13-010. DEFINITIONS. As used in this subtitle: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer; (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under KENTUCKY REVISED STATUTES ("KRS") 271B.13-020 and who exercises that right when and in the manner required by KRS 271B.13-200 to KRS 271B.13-280; (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. In any transaction subject to the requirements of KRS 271B.12- 210 or exempted by KRS 271B.12-220(2), "fair value" shall be at least an amount required to be paid under KRS 271B.12-220(2) in order to be exempt from the requirements of KRS 271B.12- 210; (4) "Interest" means interest from the effective date of the corporate until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances; (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation; (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. 271B.13-020. RIGHT TO DISSENT. (1) A shareholder is entitled to dissent from, and obtain payment of the fair value of the shareholder's shares in the event of, any of the following corporate actions: (a) Consummation of a plan of merger to which the corporation is a party; 1. If shareholder approval is required for the merger by KRS 271B.11-040 or the charter and the shareholder is entitled to vote on the merger; or 2. If the corporation is a subsidiary that is merged with its parent under KRS 271B.11-040; (b) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; (c) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange, including a sale in dissolution, but not including a sale pursuant to court order or a A-1 <PAGE> 1254 sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one (1) year after the date of sale; (d) An amendment of the charter that materially and adversely affects rights in respect of a dissenter's shares because it: 1. Alters or abolishes a preferential right of the shares to a distribution or in dissolution; 2. Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; 3. Excludes or limits the right of the shares to vote on any matter other than a limitation by dilution through issuance of shares or other securities with similar voting rights; or 4. Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under KRS 271B.6-040; or (e) Any transaction subject to the requirements of KRS 271B.12-210 or exempted by KRS 271B.12-220(2); or (f) Any corporate action taken pursuant to a shareholder vote to the extent the charter, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (2) A shareholder entitled to dissent and obtain payment for his shares under this subchapter may not challenge the corporate action creating his entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. 271B.13-030. DISSENT BY NOMINEE AND BENEFICIAL OWNERS. (1) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one (1) person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (2) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (a) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (b) He does so with respect to all shares of which he is the beneficial shareholder or over which he has power to direct the vote. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 271B.13-200. NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate action creating dissenters' rights under KRS 271B.13-020 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this subtitle and the corporation shall undertake to provide a copy of this subtitle to any shareholder entitled to vote at the shareholders' meeting upon request of that shareholder. (2) If corporate action creating dissenters' rights under KRS 271B.13-020 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in KRS 271B.13-220. A-2 <PAGE> 1255 271B.13-210. NOTICE OF INTENT TO DEMAND PAYMENT. (1) If proposed corporate action creating dissenters' rights under KRS 271B.13-020 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (a) Shall deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (b) Shall not vote his shares in favor of the proposed action. (2) A shareholder who does not satisfy the requirements of subsection (1) of this section is not entitled to payment for the shareholder's shares under this chapter. 271B.13-220. DISSENTERS' NOTICE. (1) If proposed corporate action creating dissenters' rights under KRS 271B.13-020 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of KRS 271B.13-210. (2) The dissenters' notice must be sent no later than ten (10) days after the corporate action was authorized by the shareholders or effectuated, whichever is the first to occur, and must: (a) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (b) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (c) Supply a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and requires that the person asserting dissenters' rights certify whether or not he acquired beneficial ownership of the shares before that date; (d) Set a date by which the corporation must receive the payment demand, which date may not be fewer than thirty (30) nor more than sixty (60) days after the date the notice required by subsection (1) of this section is delivered; and (e) Be accompanied by a copy of this subtitle. 271B.13-230. DUTY TO DEMAND PAYMENT. (1) A shareholder sent a dissenters' notice described in KRS 271B.13-220 must demand payment, certify whether he acquired beneficial ownership of the shares before the date required to be set forth in the dissenters' notice pursuant to subsection (2)(c) of KRS 271B.13-220, and deposit his certificates in accordance with the terms of the notice. (2) The shareholder who demands payment and deposits his share certificates under subsection (1) of this section shall retain all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (3) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this subtitle. 271B.13-240. SHARE RESTRICTIONS. (1) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under KRS 271B.13-260. A-3 <PAGE> 1256 (2) The person for whom dissenters' rights are asserted as to uncertificated shares shall retain all other rights of a shareholder until these rights are canceled or modified by the effectuation of the proposed corporate action. 271B.13-250. PAYMENT. (1) Except as provided in KRS 271B.13-270, as soon as the proposed corporate action is effectuated, or upon receipt of a payment demand, which ever is later, the corporation shall pay each dissenter who complied with KRS 271B.13-230 the amount the corporation estimates to be the fair value of his shares, plus accrued interest. (2) The payment must be accompanied by: (a) The corporation's balance sheet as of the end of a fiscal year ending not more than sixteen (16) months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (b) A statement of a corporations' estimate of the fair value of the shares; (c) An explanation of how the interest was calculated; and (d) A statement of the dissenter's right to demand payment under KRS 271B.13-280. 271B.13-260. FAILURE TO TAKE ACTION. (1) If the corporation does not effectuate the proposed action that gave rise to the dissenters' rights within sixty (60) days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (2) If after returning deposited certificates and releasing transfer restrictions, the corporate effectuates the proposed action, it must send a new dissenters' notice under KRS 271B.13-220 and repeat the payment demand procedure. 271B.13-270. AFTER-ACQUIRED SHARES. (1) A corporation may elect to withhold payment required by KRS 271B.13-250 from a dissenter unless he was the beneficial owner of the shares before the date set forth in the dissenters' notice as the date of the first announcements to news media or to shareholders of the terms of the proposed corporate action. (2) To the extent the corporation elects to withhold payment under subsection (1) of this section, after effectuating the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of his demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter's right to demand payment under KRS 271B.13-280. 271B.13-280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (1) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate (less any payment under KRS 271B.13-250), or reject the corporation's offer under KRS 271B.13-270 and demand payment of the fair value of his shares and interest due, if: (a) The dissenter believes that the amount paid under KRS 271B.13-250 or offered under KRS 271B.13-270 is less than the fair value of his shares or that the interest due is incorrectly calculated; (b) The corporation fails to make payment under KRS 271B.13-250 within sixty (60) days after the date set for demanding payment; or A-4 <PAGE> 1257 (c) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within sixty (60) days after the date set for demanding payment. (2) A dissenter waives his right to demand payment under this section unless he notifies the corporation of his demand in writing under subsection (1) of this section within thirty (30) days after the corporation made or offered payment for his shares. JUDICIAL APPRAISAL OF SHARES 271B.13-300. COURT ACTION. (1) If a demand for payment under KRS 271B.13-280 remains unsettled, the corporation shall commence a proceeding within sixty (60) days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the sixty-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (2) The corporation shall commence the proceeding in the circuit court of the county where the corporation's principal office (or, if none in this state, its registered office) is located. If the corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (3) The corporation shall make all dissenters (whether or not residents of this state) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. (4) The jurisdiction of the court in which the proceeding is commenced under subsection (2) of this section is plenary and exclusive. The court may appoint one (1) or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings. (5) Each dissenter made a party to the proceeding is entitled to judgment: (a) For the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation; or (b) For the fair value, plus accrued interest, of his after-acquired shares for which the corporation elected to withhold payment under KRS 271B.13-270. 271B.13-310. COURT COSTS AND COUNSEL FEES. (1) The court in an appraisal proceeding commenced under KRS 271B.13-300 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under KRS 271B.13-280. (2) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (a) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of KRS 271B.13-200 or KRS 271B.13-280; or A-5 <PAGE> 1258 (b) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this subtitle. (3) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1259 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 6,329,468 $373,798 $536,377 $757,083 $6,277,447 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $ 6,329,468 373,798 536,377 757,083 6,277,447 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... (38) (60) (60) Gain/loss on sale of securities............. (958) (1,525) (1,525) Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... (996) (1,585) (1,585) -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. -- -- -- Adjustment for ownership in other Belk entities.................................. (312) -------- -------- -------- ---------- Per Model..................................... $372,802 $534,792 $755,498 $6,277,135 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (124,585) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (1,495,281) Loans receivable from affiliates, net..... (7,464) Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (1,627,330) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $(1,627,330) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1260 SUPPLEMENT NO. 29 <PAGE> 1261 BELK-SIMPSON COMPANY OF CORBIN, KENTUCKY, INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 29 <PAGE> 1262 BELK-SIMPSON COMPANY OF HARLAN, KENTUCKY, INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Simpson Company of Harlan, Kentucky, Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Kentucky law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 128.1260 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 201,734 shares of New Belk Class A Common Stock which will represent approximately 0.3362% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1263 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1264 BELK-SIMPSON COMPANY OF HARLAN, KENTUCKY, INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-SIMPSON COMPANY OF HARLAN, KENTUCKY, INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Simpson Company of Harlan, Kentucky, Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Kentucky law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 128.1260 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1265 BELK-SIMPSON COMPANY OF HARLAN, KENTUCKY, INCORPORATED SUPPLEMENT NO. 30 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 30 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-SIMPSON COMPANY OF HARLAN, KENTUCKY, INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/ PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 1266 THE COMPANY The Company was incorporated as a Kentucky corporation in 1955. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights under Kentucky law), will be converted, without any action on the part of the Shareholder, into the right to receive 128.1260 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1267 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Kentucky Business Corporation Act (the "KBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the KBCA. Authorized Capital Stock. The authorized capital stock of New Belk is 420,000,000 shares, consisting of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 6,720 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A 3 <PAGE> 1268 Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution, as the case may be, New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the KBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as the effect of such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to 4 <PAGE> 1269 be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The KBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 33 1/3% (or such higher or lower percentage as is contained in the articles of incorporation) of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the KBCA, unless the articles of incorporation or the KBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. 5 <PAGE> 1270 Under the KBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the KBCA requires an amendment to the articles of incorporation to be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation or the board of directors requires a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the KBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater vote or a vote by voting group to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval of the stockholders to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power, to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the KBCA, the board of directors of a corporation may amend or repeal the bylaws of the corporation unless (i) the articles of incorporation or the KBCA reserves this power exclusively to the shareholders in whole or part or (ii) the shareholders in amending or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw. The shareholders of the corporation may amend or repeal the bylaws of the corporation even though such bylaws may be amended or repealed by the board of directors of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board, or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. The KBCA provides that, except as provided in the articles of incorporation, action to be taken at a shareholders' meeting may be taken without a meeting and without prior notice, if the action is taken by all the shareholders entitled to vote on the action. 6 <PAGE> 1271 If the articles of incorporation so provide, any action except the election of directors, may be taken without a meeting and without prior notice of the holders of at least 80% (or such higher percentage required by the KBCA or the articles of incorporation) of the votes entitled to be cast on such action sign the written consent(s) describing such action. The Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the KBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The KBCA requires a corporation to have at least one director. The number of directors is set by the articles of incorporation or the bylaws. If a board of directors has power to fix or change the number of directors, the board of directors may increase or decrease by 30% or less the number of directors last approved by the shareholders, but only the shareholders may increase or decrease by more than 30% the number of directors last approved by the shareholders. If the articles of incorporation or bylaws establish a variable range for the size of the board of directors, the number of directors may be changed, within the prescribed range, by the shareholders or by the board of directors. After shares are issued, only the shareholders may change the 7 <PAGE> 1272 range for the size of the board or change from a fixed to a variable range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. The Company Articles provides that the Company Board shall consist of nine directors. Qualifications of Directors. The DGCL allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The KBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of Kentucky or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Articles and Company Bylaws do not require directors of the Company to be residents of Kentucky or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The KBCA provides that the articles of incorporation may allow for staggering the terms of directors by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company does not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. According to the KBCA, the shareholders may remove one or more directors with or without cause, unless the articles of incorporation provide that directors may be removed only for cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. A director may not be removed if the number of votes sufficient to elect him under cumulative voting is voted against his removal. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under the DGCL, cumulative voting of stock applies only when so provided in the certificate of incorporation. The New Belk Certificate does not provide for cumulative voting. The Constitution of the Commonwealth of Kentucky guarantees cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a 8 <PAGE> 1273 majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the KBCA generally permits transactions involving a Kentucky corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the board of directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and they authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the KBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the KBCA (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the KBCA or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. Unless limited by its article of incorporation, a corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to 9 <PAGE> 1274 which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The KBCA concerning prohibiting the elimination or limitation of a director's personal, monetary liability is equivalent to the DGCL. The Company Bylaws authorize indemnification as provided in the KBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The KBCA concerning the approval of mergers or share exchanges is similar in all material respects to the DGCL, except that under the KBCA the surviving company's shareholders must approve a merger or share exchange if, after giving effect to the transaction, their interest in the participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The KBCA and DGCL provisions concerning the approval of the sale of all or substantially all of the assets of a corporation are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the KBCA contain business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL and KBCA, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. 10 <PAGE> 1275 The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation and within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The KBCA defines an "interested shareholder" as any person who (i) is the direct or indirect beneficial owner of at least 10% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate of the corporation and within five years of the date in question was the direct or indirect owner of at least 10% of the voting power of any class or series of the then outstanding stock of such corporation. The KBCA defines a "continuing director" as any member of the board of directors that is not an affiliate or associate of an interested shareholder or any of its affiliates, other than the corporation, and who was a director of the corporation prior to the time the interested shareholder became an interested shareholder. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. The KBCA provides that in addition to any vote otherwise required by the KBCA or the articles of incorporation, a business combination must be approved by a majority of independent members of the board of directors who are also continuing directors, or the business combination must be approved by 80% of the votes entitled to be cast by outstanding shares of voting stock and two-thirds of the votes entitled to be cast by holders of voting stock other than voting stock beneficially owned by an interested shareholder or an associate or affiliate of an interested shareholder. Furthermore, under the KBCA no business combination may occur between the corporation and an interested shareholder for five years after the date on which such person became an interested shareholder unless such person became an interested shareholder before March 28, 1986 or unless a majority of the independent directors approved the business combination before the date on which such person became an interested shareholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the KBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New 11 <PAGE> 1276 Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The KBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company has not granted preemptive rights to any Shareholder. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the KBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose; (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Sections 271B.13-200 to 271B.13-280 of the KBCA of the Kentucky Revised Statutes has the right to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Section 271B.13-010, et seq., of the KBCA ("Subtitle 13") and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Subtitle 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN SUBTITLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. A Shareholder may dissent as to less than all the shares registered in his name, but must dissent as to all shares beneficially owned by any one person. In that event, his rights shall be determined as if the shares to which he has dissented and the other shares registered in his name were registered in the names of different Shareholders. A Shareholder desiring to pursue rights of appraisal must fulfill each of the following requirements: (1) The dissenting Shareholder must file a written objection to the Reorganization Agreement with the Company at or prior to the Special Meeting. Such objection must be delivered to the Company at 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel. (2) The dissenting Shareholder must not vote in favor of the Reorganization Agreement at the Special Meeting. A failure to vote against the Reorganization Agreement will not constitute a waiver of a dissenting Shareholder's appraisal rights under Subtitle 13. 12 <PAGE> 1277 (3) The dissenting Shareholder must make written demand upon the Company for payment of the fair value of the dissenting Shareholder's shares. The Company will deliver a written dissenters' notice (the "Dissenters' Notice") to the dissenting Shareholder within 10 days after the Special Meeting at which the Reorganization Agreement was approved which will (i) state where dissenting Shareholders must (a) send the Payment Demand (as defined below) and where and when they must (b) deposit their common stock certificates (the "Certificates"), (ii) inform holders of uncertificated shares of the extent of any restrictions on the transferability of such shares, (iii) be accompanied by a form for demanding payment that includes the date of the first announcement to the news media or to Shareholders of the terms of the proposed Merger and requires that the dissenting Shareholder certify whether he acquired beneficial ownership of the shares before that date, (iv) set a date by which the Company must receive the Payment Demand, which may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is delivered, and (v) be accompanied by a copy of Subtitle 13. (4) A dissenting Shareholder who is sent the Dissenters' Notice must (i) certify whether he acquired beneficial ownership of the shares before the date of the first announcement to the news media or to Shareholders of the terms of the proposed Merger, and (ii) demand payment and deposit the Certificates by the date specified in the Dissenters' Notice. Any dissenting Shareholder who makes a demand for payment and deposits the Certificates as required by Subtitle 13 of the KRS will retain all other rights of a Shareholder until such rights are canceled or modified by the Merger. Any Shareholder failing to make demand for payment by the date specified in the Dissenters' Notice will not be entitled to payment under Subtitle 13. Any dissenting Shareholder who has fulfilled the foregoing requirement of Subtitle 13 will be paid by the Company, upon surrender of the Certificate or Certificates representing the dissenting shares, the fair value of the dissenting shares as of the day prior to the date of the Special Meeting at which the Reorganization Agreement was approved, excluding any appreciation or depreciation in anticipation of the Merger plus accrued interest. Subtitle 13 requires the payment to be accompanied by (i) certain of the Company's financial statements, (ii) a statement of the Company's estimate of fair value of the shares and explanation of how the interest was calculated, (iii) notification of rights to demand payment and (iv) a copy of Subtitle 13. The Company may delay any payments with respect to any shares (the "after-acquired shares") held by a dissenting Shareholder which were not held by such Shareholder on [ ], the date of the first public announcement of the terms of the Reorganization Agreement. When payments are so withheld, the Company must send to the holder of the after-acquired shares after the Merger an offer to pay the holder an amount equal to Company's estimate of their fair value plus accrued interest, together with an explanation of the calculation of interest and a statement of the holder's right to demand payment. If the Merger is not consummated within 60 days after the date set for demanding payment and depositing Certificates, the Company must return the deposited Certificates. If, after returning deposited Certificates, the Merger is consummated, the Company must send a new Dissenters' Notice and repeat the payment demand procedure. If the dissenting Shareholder believes that the amount paid by the Company or offered by the Company is less than the fair value of his shares or that the interest due is calculated incorrectly, or if the Company fails to make payment (or, if the Merger has not consummated, the Company does not return the deposited Certificates) within 60 days after the date set in the Dissenters' Notice, then the dissenting Shareholder may, within 30 days after the Company made or offered payment for the shares or failed to pay for the shares, notify the Company in writing of his own estimate of the fair value of such shares (including interest due) and demand payment of such estimate (less any payment previously received). Failure to notify the Company in writing of a demand for payment within 30 days after the Company made or offered payment for such shares will constitute a waiver of the right to demand payment. If the Company and the dissenting Shareholder cannot agree on a fair price within 60 days after the Company receives such a demand for payment, Subtitle 13 provides that the Company will institute judicial proceedings in the appropriate court, as specified in Subtitle 13 (the "Court"), to fix (i) the fair value of the shares immediately before consummation of the Merger, excluding any appreciation or depreciation in 13 <PAGE> 1278 anticipation of the Merger, and (ii) the accrued interest. The "fair value" of the Common Stock could be more than, the same as, or less than that produced by the Exchange Ratio. The Company must make all dissenters whose demands remain unsettled parties to the proceeding and all such parties must be served with a copy of the petition. The Court may, in its discretion, appoint an appraiser to receive evidence and recommend a decision on the question of fair value. The Court is required to issue a judgment for the amount, if any, by which the fair value of the shares, as determined by the Court, plus accrued interest, exceeds the amount paid by the Company or for the fair value, plus accrued interest, of his after-acquired shares for which the Company elected to withhold payment. If the Company does not institute such proceeding within such 60-day period, the Company must pay each dissenting Shareholder whose demand remains unsettled the respective amount demanded by each Shareholder. The Court will assess the costs and expenses of such proceeding (including reasonable compensation for and the expenses of the appraiser appointed by the Court) against the Company, except that the Court may assess such costs and expenses as it deems appropriate against any or all of the dissenting Shareholders if it finds that their demand for additional payment was arbitrary, vexatious or otherwise not in good faith in demanding payment from the Company. The Court may also assess the fees and expenses of counsel and experts for the respective parties against (i) the Company, if the Court finds that the Company did not comply with the material requirements of Subtitle 13, or (ii) either the Company or the dissenting Shareholders, if either acted arbitrarily, vexatiously or otherwise not in good faith. If the Court finds that the services of counsel for any dissenting Shareholders were of substantial benefit to other dissenting Shareholders, the court may award these counsel reasonable attorneys fees to be paid out of the amounts awarded to the dissenting Shareholders who were benefitted. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common 14 <PAGE> 1279 Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- --------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales.................... $7,324,820 $7,324,820 0.6 $(879,938) $5,274,830 EBITDA....................... 324,820 258,104 7 (879,938) 2,686,666 EBIT......................... 168,235 221,236 10 (879,938) 3,092,298 Net Income................... 149,572 194,526 15 -- 2,917,890 Book Equity.................. 3,682,552 3,682,440 1 -- 3,682,440 </TABLE> 15 <PAGE> 1280 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ---------- Total $ N/A ========== Relative Operating Value of Company $5,274,830 Relative Operating Value of Other Companies Owned by Company + $ -- ---------- Total Relative Value of Company = $5,274,830 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. 10.5263% X $5,274,830 = $ 555,244 Belk's Department Store of Florence, S.C., Incorporated 15.8129 X 5,274,830 = 834,104 ---------- Total $1,389,348 ========== Total Relative Value of Company $5,274,830 Total Relative Value of Company Owned by Other Belk Companies - 1,389,348 ---------- Net Relative Value of Company = $3,885,482 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $3,885,482 / 1,155,623,145 = .3362% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.3362% X 60,000,007) / 1,574.5 = 128.1260 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1281 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 69.98 Book value per share(2)................................... 1,722.83 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 121.62 Book value per share...................................... 1,622.32 </TABLE> - --------------- (1) Based on 2,137.50 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 2,137.50 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1282 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 7,668 $ 7,582 $ 7,325 Net income.................................................. 218 158 150 Per common share Net Income (loss)(1)...................................... 102.14 73.87 69.98 Dividends................................................. 10.00 15.00 20.00 Book value(2)............................................. 1,613.99 1,672.86 1,722.83 Total assets................................................ 4,090 4,167 4,150 Shareholders' equity........................................ 3,450 3,576 3,683 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $4,933 $4,909 Income from operations...................................... (9) 177 </TABLE> - --------------- (1) Based on 2,137.50 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 2,137.50 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1283 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates two retail department stores in the following locations in Kentucky: Village Center in Harlan and Middlesboro Mall in Middlesboro. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The stores are managed out of the Kunhe/Greiner group office in Greenville, South Carolina. Facilities. The Company operates two stores, both of which are leased under long-term leases. The store leases have termination dates of 2007 and 2009, respectively. The floor space of each of the leased buildings is 58,000 square feet. The Company believes these facilities are adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Goody's and Penney. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1284 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)........ 868.0 40.6% Thomas M. Belk, Jr. (Executive Officer) (a)(b)(c)........... 753.0 35.2% H. W. McKay Belk (Executive Officer) (a)(b)(d).............. 758.0 35.5% John R. Belk (Director and Executive Officer) (a)(b)(c)..... 748.0 35.0% Sarah Belk Gambrell......................................... 680.0 31.8% Leroy Robinson (a).......................................... 180.0 8.4% Katherine McKay Belk (a).................................... 180.0 8.4% Katherine Belk Morris (a)(f)................................ 195.0 9.1% John A. Kuhne (Director and Executive Officer) (h).......... 112.5 5.3% Kate Simpson (g)............................................ 162.5 7.6% Lucy Simpson Kuhne (g)...................................... 162.5 7.6% Mary E. S. Hanahan.......................................... 112.5 5.3% R. E. Greiner (Executive Officer)........................... 0 * Welch Bostick, Jr. (Executive Officer)...................... 0 * Thomas M. Belk, Trustee U/A dated September 15, 1993........ 180 8.45 Belk's Department Store of Florence, S.C., Incorporated..... 338 15.8% Belk Enterprises, Inc. ..................................... 225 10.5% All Directors and Executive Officers as a group (8 persons).................................................. 1,690.5 79.1% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; John A. Kuhne, Lucy S. Kuhne, Kate Simpson, R. E. Greiner and Welch Bostick, Jr. -- 14 S. Main Street, Greenville, S.C. 29601; Mary E. S. Hanahan -- P.O. Box 1294, Charleston, S.C. 29402; Belk's Department Store of Florence, S.C., Incorporated, Belk Enterprises, Inc. -- 2801 West Tyvola Road, Charlotte, N.C., 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 180 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 338 shares held by Belk's Department Store of Florence, S.C., Incorporated and 225 shares held by Belk Enterprises, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. 20 <PAGE> 1285 (c) Includes 10 shares held by Thomas M. Belk, Jr. as custodian for his minor children. (d) Includes 15 shares held by H. W. McKay Belk as custodian for his minor children. (e) Includes 5 shares held by John R. Belk as custodian for his minor children. (f) Includes 15 shares held by Katherine Belk Morris as custodian for her minor children. (g) Includes 50 shares held by the Estate of William Henry Belk Simpson. Voting and investment power is shared by the Personal Representatives, who are Kate Simpson, Lucy Kuhne and Claire Russo. (h) Includes 112.5 shares held by John A. Kuhne's wife, Lucy S. Kuhne. 21 <PAGE> 1286 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1287 BELK-SIMPSON COMPANY OF HARLAN, KENTUCKY, INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 413,636 $ 97,256 Accounts receivable, net.................................. 1,206,910 1,400,358 Merchandise inventory..................................... 1,814,515 1,610,640 Receivable from affiliates, net........................... 406,837 777,122 Refundable income taxes................................... 9,697 5,411 Deferred income taxes..................................... 30,329 24,888 Other..................................................... 66,621 88,797 ---------- ---------- Total current assets........................................ 3,948,545 4,004,472 Loans receivable from affiliates, net....................... 5,560 5,560 Investments................................................. 112 112 Property, plant and equipment, net.......................... 152,814 72,430 Deferred income taxes....................................... -- 12,850 Other noncurrent assets..................................... 59,657 54,570 ---------- ---------- $4,166,688 $4,149,994 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 468,495 $ 352,145 Accrued income taxes...................................... 47,272 47,524 ---------- ---------- Total current liabilities................................... 515,767 399,669 Deferred income taxes....................................... 10,094 -- Other noncurrent liabilities................................ 65,097 67,773 ---------- ---------- Total liabilities........................................... 590,958 467,442 Shareholders' equity: Common stock.............................................. 213,750 213,750 Retained earnings......................................... 3,361,980 3,468,802 ---------- ---------- Total Shareholders' equity.................................. 3,575,730 3,682,552 ---------- ---------- $4,166,688 $4,149,994 ========== ========== </TABLE> F-2 <PAGE> 1288 BELK-SIMPSON COMPANY OF HARLAN, KENTUCKY, INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $7,668,351 $7,581,525 $7,324,819 Operating costs and expenses............................... 7,293,048 7,342,949 7,084,183 Impairment loss............................................ -- -- 52,494 ---------- ---------- ---------- Income from operations..................................... 375,303 238,576 188,142 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (3,088) 10,310 8,113 Gain (loss) on disposal of property, plant and equipment............................................. -- -- (507) Miscellaneous, net....................................... (1,930) 5,087 (19,400) ---------- ---------- ---------- Total other expense, net................................... (5,018) 15,397 (11,794) ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 370,285 253,973 176,348 Income tax expense (benefit)............................... 151,952 96,085 26,776 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 218,333 157,888 149,572 ---------- ---------- ---------- Net earnings............................................... 218,333 157,888 149,572 Retained earnings at beginning of period................... 3,039,197 3,236,155 3,361,980 Dividends paid............................................. (21,375) (32,063) (42,750) ---------- ---------- ---------- Retained earnings at end of period......................... $3,236,155 $3,361,980 $3,468,802 ========== ========== ========== </TABLE> F-3 <PAGE> 1289 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1290 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1291 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 23, CHAPTER 271B BUSINESS CORPORATIONS STATE OF KENTUCKY SUBTITLE 13. DISSENTERS' RIGHTS RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES 271B.13-010. DEFINITIONS. As used in this subtitle: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer; (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Kentucky Revised Statutes ("KRS") 271B.13-020 and who exercises that right when and in the manner required by KRS 271B.13-200 to KRS 271B.13-280; (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. In any transaction subject to the requirements of KRS 271B.12- 210 or exempted by KRS 271B.12-220(2), "fair value" shall be at least an amount required to be paid under KRS 271B.12-220(2) in order to be exempt from the requirements of KRS 271B.12- 210; (4) "Interest" means interest from the effective date of the corporate until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances; (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation; (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. 271B.13-020. RIGHT TO DISSENT. (1) A shareholder is entitled to dissent from, and obtain payment of the fair value of the shareholder's shares in the event of, any of the following corporate actions: (a) Consummation of a plan of merger to which the corporation is a party; 1. If shareholder approval is required for the merger by KRS 271B.11-040 or the charter and the shareholder is entitled to vote on the merger; or 2. If the corporation is a subsidiary that is merged with its parent under KRS 271B.11-040; (b) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; (c) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange, including a sale in dissolution, but not including a sale pursuant to court order or a A-1 <PAGE> 1292 sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one (1) year after the date of sale; (d) An amendment of the charter that materially and adversely affects rights in respect of a dissenter's shares because it: 1. Alters or abolishes a preferential right of the shares to a distribution or in dissolution; 2. Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; 3. Excludes or limits the right of the shares to vote on any matter other than a limitation by dilution through issuance of shares or other securities with similar voting rights; or 4. Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under KRS 271B.6-040; or (e) Any transaction subject to the requirements of KRS 271B.12-210 or exempted by KRS 271B.12-220(2); or (f) Any corporate action taken pursuant to a shareholder vote to the extent the charter, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (2) A shareholder entitled to dissent and obtain payment for his shares under this subchapter may not challenge the corporate action creating his entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. 271B.13-030. DISSENT BY NOMINEE AND BENEFICIAL OWNERS. (1) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one (1) person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (2) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (a) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (b) He does so with respect to all shares of which he is the beneficial shareholder or over which he has power to direct the vote. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS 271B.13-200. NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate action creating dissenters' rights under KRS 271B.13-020 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this subtitle and the corporation shall undertake to provide a copy of this subtitle to any shareholder entitled to vote at the shareholders' meeting upon request of that shareholder. (2) If corporate action creating dissenters' rights under KRS 271B.13-020 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in KRS 271B.13-220. A-2 <PAGE> 1293 271B.13-210. NOTICE OF INTENT TO DEMAND PAYMENT. (1) If proposed corporate action creating dissenters' rights under KRS 271B.13-020 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (a) Shall deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (b) Shall not vote his shares in favor of the proposed action. (2) A shareholder who does not satisfy the requirements of subsection (1) of this section is not entitled to payment for the shareholder's shares under this chapter. 271B.13-220. DISSENTERS' NOTICE. (1) If proposed corporate action creating dissenters' rights under KRS 271B.13-020 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of KRS 271B.13-210. (2) The dissenters' notice must be sent no later than ten (10) days after the corporate action was authorized by the shareholders or effectuated, whichever is the first to occur, and must: (a) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (b) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (c) Supply a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and requires that the person asserting dissenters' rights certify whether or not he acquired beneficial ownership of the shares before that date; (d) Set a date by which the corporation must receive the payment demand, which date may not be fewer than thirty (30) nor more than sixty (60) days after the date the notice required by subsection (1) of this section is delivered; and (e) Be accompanied by a copy of this subtitle. 271B.13-230. DUTY TO DEMAND PAYMENT. (1) A shareholder sent a dissenters' notice described in KRS 271B.13-220 must demand payment, certify whether he acquired beneficial ownership of the shares before the date required to be set forth in the dissenters' notice pursuant to subsection (2)(c) of KRS 271B.13-220, and deposit his certificates in accordance with the terms of the notice. (2) The shareholder who demands payment and deposits his share certificates under subsection (1) of this section shall retain all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (3) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this subtitle. 271B.13-240. SHARE RESTRICTIONS. (1) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under KRS 271B.13-260. A-3 <PAGE> 1294 (2) The person for whom dissenters' rights are asserted as to uncertificated shares shall retain all other rights of a shareholder until these rights are canceled or modified by the effectuation of the proposed corporate action. 271B.13-250. PAYMENT. (1) Except as provided in KRS 271B.13-270, as soon as the proposed corporate action is effectuated, or upon receipt of a payment demand, which ever is later, the corporation shall pay each dissenter who complied with KRS 271B.13-230 the amount the corporation estimates to be the fair value of his shares, plus accrued interest. (2) The payment must be accompanied by: (a) The corporation's balance sheet as of the end of a fiscal year ending not more than sixteen (16) months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (b) A statement of a corporations' estimate of the fair value of the shares; (c) An explanation of how the interest was calculated; and (d) A statement of the dissenter's right to demand payment under KRS 271B.13-280. 271B.13-260. FAILURE TO TAKE ACTION. (1) If the corporation does not effectuate the proposed action that gave rise to the dissenters' rights within sixty (60) days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (2) If after returning deposited certificates and releasing transfer restrictions, the corporate effectuates the proposed action, it must send a new dissenters' notice under KRS 271B.13-220 and repeat the payment demand procedure. 271B.13-270. AFTER-ACQUIRED SHARES. (1) A corporation may elect to withhold payment required by KRS 271B.13-250 from a dissenter unless he was the beneficial owner of the shares before the date set forth in the dissenters' notice as the date of the first announcements to news media or to shareholders of the terms of the proposed corporate action. (2) To the extent the corporation elects to withhold payment under subsection (1) of this section, after effectuating the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of his demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter's right to demand payment under KRS 271B.13-280. 271B.13-280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (1) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate (less any payment under KRS 271B.13-250), or reject the corporation's offer under KRS 271B.13-270 and demand payment of the fair value of his shares and interest due, if: (a) The dissenter believes that the amount paid under KRS 271B.13-250 or offered under KRS 271B.13-270 is less than the fair value of his shares or that the interest due is incorrectly calculated; (b) The corporation fails to make payment under KRS 271B.13-250 within sixty (60) days after the date set for demanding payment; or A-4 <PAGE> 1295 (c) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within sixty (60) days after the date set for demanding payment. (2) A dissenter waives his right to demand payment under this section unless he notifies the corporation of his demand in writing under subsection (1) of this section within thirty (30) days after the corporation made or offered payment for his shares. JUDICIAL APPRAISAL OF SHARES 271B.13-300. COURT ACTION. (1) If a demand for payment under KRS 271B.13-280 remains unsettled, the corporation shall commence a proceeding within sixty (60) days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the sixty-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (2) The corporation shall commence the proceeding in the circuit court of the county where the corporation's principal office (or, if none in this state, its registered office) is located. If the corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (3) The corporation shall make all dissenters (whether or not residents of this state) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. (4) The jurisdiction of the court in which the proceeding is commenced under subsection (2) of this section is plenary and exclusive. The court may appoint one (1) or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings. (5) Each dissenter made a party to the proceeding is entitled to judgment: (a) For the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation; or (b) For the fair value, plus accrued interest, of his after-acquired shares for which the corporation elected to withhold payment under KRS 271B.13-270. 271B.13-310. COURT COSTS AND COUNSEL FEES. (1) The court in an appraisal proceeding commenced under KRS 271B.13-300 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under KRS 271B.13-280. (2) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (a) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of KRS 271B.13-200 or KRS 271B.13-280; or A-5 <PAGE> 1296 (b) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this subtitle. (3) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1297 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $7,324,820 $149,572 $168,235 $205,103 $3,682,552 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- -------- ---------- Adjusted Shareholders' Statement............... $7,324,820 149,572 168,235 205,103 3,682,552 ========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ 430 507 507 Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. 44,524 52,494 52,494 Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- -------- -------- -------- Total non-operating items...................... 44,954 53,001 53,001 -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (112) -------- -------- -------- ---------- Per Model...................................... $194,526 $221,236 $258,104 $3,682,440 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (97,256) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... (777,122) Loans receivable from affiliates, net...... (5,560) Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ -- Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ (879,938) Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ (879,938) ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1298 SUPPLEMENT NO. 30 <PAGE> 1299 BELK-SIMPSON COMPANY OF HARLAN, KENTUCKY, INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 30 <PAGE> 1300 BELK OF MISS., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Miss., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Mississippi law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 9.2288 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 776,619 shares of New Belk Class A Common Stock which will represent approximately 1.2944% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 1301 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1302 BELK OF MISS., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF MISS., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Miss., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under Mississippi law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 9.2288 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1303 BELK OF MISS., INC. SUPPLEMENT NO. 31 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 31 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF MISS., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 13 COMPARATIVE PER SHARE DATA.................................. 16 SELECTED HISTORICAL FINANCIAL INFORMATION................... 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 18 General................................................... 18 Comparison of Nine Months Ended November 1, 1997 and November 2, 1996....................................... 18 Comparison of Fiscal Years Ended February 1, 1997 and February 3, 1996....................................... 19 Comparison of Fiscal Years Ended February 3, 1996 and January 31, 1995....................................... 19 Seasonality and Quarterly Fluctuations.................... 20 Liquidity and Capital Resources........................... 20 Impact of Inflation....................................... 21 BUSINESS OF THE COMPANY..................................... 21 SECURITY OWNERSHIP OF THE COMPANY........................... 22 INDEX TO HISTORICAL FINANCIAL STATEMENTS.................... F-1 Report of KPMG Peat Marwick LLP, Independent Auditors..... F-2 Balance Sheets............................................ F-3 Statements of Operations.................................. F-4 Statements of Shareholders' Equity........................ F-5 Statements of Cash Flows.................................. F-6 Notes to Financial Statements............................. F-7 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 1304 THE COMPANY The Company was incorporated as a Mississippi corporation in 1946 as Belk-Hudson Company of Corinth, Mississippi, Incorporated. The Company changed its name to Belk of Miss., Inc. on July 9, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of Class A Common Stock, $100 par value per share (the "Class A Common Stock"), and Class B Common Stock, $100 par value per share (the "Class B Common Stock"; together with the Class A Common Stock, the "Common Stock"), of the Company (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under Mississippi law), will be converted, without any action on the part of the Shareholder, into the right to receive 9.2288 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 1305 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see ' -- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to share the risks associated with the Company's new store in Prattville, Alabama and recent store renovations in Gadsden and Cullman, Alabama. The Company recently opened the new store in Prattville, where Belk has no history of store operations, and renovated its stores in Gadsden and Cullman. The Company borrowed funds to finance these projects. There is no assurance that the operating results of these new and renovated stores will meet projections. If these new and renovated stores do not meet projections, the Company may have difficulty repaying its borrowings for these projects. The Merger would enable the Company to rely upon New Belk to repay these borrowings. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the Mississippi Business Corporation Act (the "MBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the MBCA. 3 <PAGE> 1306 Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of (i) 300,000 shares of Class A Common Stock and (ii) 6,000 shares of Class B Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution, as the case may be, New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or 4 <PAGE> 1307 exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the MBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The MBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and holders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the MBCA, unless the articles of incorporation or the MBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in 5 <PAGE> 1308 opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the shareholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the MBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the MBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the MBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires the stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. Under the MBCA, a corporation's board of directors may amend or repeal the corporation's bylaws unless: (i) the articles of incorporation or the MBCA reserve this power exclusively to the shareholders in whole or part; or (ii) the shareholders in amending or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw. A corporation's shareholders may amend or repeal the corporation's bylaws even though the bylaws may also be amended or repealed by its board of directors. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special 6 <PAGE> 1309 meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the MBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the MBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group are entitled to fill the vacancy if it is filled by the shareholders. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The MBCA requires a corporation to have at least one director. The number of directors is set by the articles of incorporation or the bylaws. If the board of directors has power to fix or change the number of directors, the board of directors may increase or decrease by 30% or less the number of directors last approved by the shareholders, but only the shareholders may increase or decrease by more than 30% the number of 7 <PAGE> 1310 directors last approved by the shareholders. If the articles of incorporation or bylaws establish a variable range for the size of the board of directors, the number of directors may be changed, within the prescribed range, by the shareholders or by the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The MBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of Mississippi or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of Mississippi or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board of directors into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The MBCA provides that if there are nine or more directors, the articles of incorporation may allow for staggering their terms by dividing the total number of directors into two or three groups, with each group containing one-half or one-third of the total. The term of each group expires in each successive year beginning with the first group and progressing to the third group, if any. Thereafter, directors are chosen for a term of two or three years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under to the MBCA, the shareholders may remove one or more directors with or without cause unless the articles of incorporation provide that directors may be removed only for cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Bylaws provide that directors of the Company may be removed from office with or without cause by a vote of the Shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed if the number of shares voting against the removal would be sufficient to elect a director if such shares were voted cumulatively at an annual election. If any directors are so removed, new directors may be elected at the same meeting. Cumulative Voting. Under the DGCL, cumulative voting of stock applies only when so provided in the certificate of incorporation. The New Belk Certificate does not provide for cumulative voting. The MBCA 8 <PAGE> 1311 provides that shareholders have the right to cumulate their votes for directors unless the articles of incorporation provide otherwise. The Company articles do not provide otherwise. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the MBCA generally permits transactions involving a Mississippi corporation and an interested director of that corporation if: (i) the transaction received the affirmative vote of a majority (but not less than two) of those qualified directors on the board of directors or on a duly empowered committee thereof who voted on the transaction after either required disclosure to them, provided that action by a committee is so effective only if (a) all its members are qualified directors, and (b) its members are either all the qualified directors on the board or are appointed by the affirmative vote of a majority of the qualified directors on the board; (ii) if a majority of the votes entitled to be cast by the holders of all qualified shares were cast in favor of the transaction after (a) notice to shareholders describing the director's conflicting interest transaction, (b) provision of the information with regard to unqualified shares and (c) required disclosure to the shareholders who voted on the transaction (to the extent the information was not known by them); or (iii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the MBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct 9 <PAGE> 1312 in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director or officer under the MBCA (i) in connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director or officer has met the relevant standard of conduct under the MBCA or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. The MBCA describes the categories prohibited from being limited or eliminated from a director's scope of personal, monetary liability as follows: (i) the amount of a financial benefit received by a director to which he is not entitled; (ii) an intentional infliction of harm on the corporation or the shareholders; (iii) a violation involving an unlawful distribution; or (iv) an intentional violation of criminal law. The Company Bylaws authorize indemnification as provided in the MBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The MBCA concerning the approval of merger or share exchange is similar in all material respects to the DGCL, except that under the MBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in the participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the MBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. The DGCL and the MBCA contain business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the 10 <PAGE> 1313 DGCL and the MBCA, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) is an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The MBCA defines an "interested shareholder" as any person who owns 20% of the outstanding voting shares or an affiliate of the corporation owning 20% of the outstanding voting shares within the prior two years. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. The MBCA requires that, in addition to any vote otherwise required by the MBCA, by the articles of incorporation or by the bylaws, a business combination be approved by 80% of the votes entitled to be cast of outstanding shares and 66 2/3% of the votes entitled to be cast by noninterested holders of voting shares voting together as a single class. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the MBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New 11 <PAGE> 1314 Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The MBCA concerning preemptive rights is equivalent to the DGCL. The Company Articles do not contain a provision with regard to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the MBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) excepts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the MBCA ("Article 13") has the right to receive in cash the fair value of such Shareholder's shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to assert statutory dissenters' rights. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Shareholders who wish to exercise dissenters' rights (i) must deliver to the Company, before the vote on the Reorganization Agreement is taken, written notice (the "Dissenter's Notice") of their intent to demand payment for their shares if the Reorganization Agreement is approved and (ii) must NOT vote their shares in favor of the Reorganization Agreement. A Shareholder who does not satisfy these requirements is not entitled to payment for shares under Article 13. A Shareholder electing to exercise dissenters' rights under Article 13 must not vote for approval of the Reorganization Agreement. Under Article 13, a vote against approval of the Reorganization Agreement is not required in order for a Shareholder to exercise dissenters' rights. However, if a Shareholder returns a signed proxy but does not specify a vote against approval of the Reorganization Agreement or an election to abstain, the proxy will be voted for the proposal which will have the effect of waiving that Shareholder's dissenters' rights. If the Merger is consummated, the Company must send a notice to that effect (the "Company Notice") no later than 10 days after the closing date to all Shareholders that have perfected their right to assert dissenters' rights under Article 13. Upon receipt of the Company Notice, dissenters must demand payment for 12 <PAGE> 1315 their shares by the date set forth in the Company Notice (a "Payment Demand"). A Shareholder who elects to exercise dissenters' rights must mail or deliver his or her written Payment Demand to: Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, attention: Mr. Ralph A. Pitts. The written Payment Demand for payment must comply with the provisions of Article 13 and must specify the Shareholder's name and mailing address, the number of shares of Common Stock owned, and state that the Shareholder is demanding payment of his or her shares. The Shareholder must also certify that the Shareholder had beneficial ownership of the shares before the date set forth in the Company Notice, which is [ ], the date of the first announcement of the proposed sale to the news media. The Shareholder must also deposit his or her share certificates in accordance with the terms of the Company Notice. Failure to make a Payment Demand or deposit the share certificates where required, each by the dates for such action set forth in the Company Notice, will forfeit the Shareholder's right to receive payment for his or her shares. Upon receipt of a Payment Demand, the Company shall pay Shareholders who complied with Article 13 the amount the Company estimates to be fair value of the shares submitted by such Shareholder plus accrued interest. Certain financial information concerning the Company, its estimate of the value of the shares, an explanation of how interest was calculated, and a statement of rights to demand payment along with a copy of Article 13, must accompany such offer or payment. A dissenter may reject the Company's payment and demand in writing payment of the fair value of his shares and interest due based on his own estimate of the fair value of his shares and amount of interest due. To be entitled to such rights, the dissenter must notify the Company of his demand in writing within 30 days after the Company made payment for the shares. If a dissenter has rejected the Company's payment and demanded payment of the fair value of the shares and interest due and the demand for such payment remains unsettled, the Company will commence a judicial proceeding within 60 days after receiving the payment demand and petition an appropriate court, as described in Article 13 (the "Court"), to determine the fair value of the shares and accrued interest. If the Company does not commence such action with the required 60-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. The Court in an appraisal proceeding will determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the Court. Additionally, the Court may assess fees of legal counsel and of experts for the respective parties. The Court will assess the costs against the Company, except that the Court may assess costs against all or some of the dissenters to the extent the Court finds the dissenters acted arbitrarily, vexatiously or not in good faith in demanding payment under Article 13, or the Court may assess counsel fees against the dissenters who were benefitted. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage 13 <PAGE> 1316 ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE NET DEBT (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- --------------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............... $28,604,139 $28,604,139 0.6 $(2,198,505) $19,360,988 EBITDA.................. 3,026,104 1,738,051 7 (2,198,505) 14,364,862 EBIT.................... 2,382,465 1,094,412 10 (2,198,505) 13,142,625 Net Income.............. 1,555,411 630,390 15 -- 9,455,850 Book Equity............. 11,274,532 11,267,862 1 -- 11,267,862 </TABLE> 14 <PAGE> 1317 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A % X $ N/A = $ N/A ----------- Total $ N/A =========== Relative Operating Value of Company $19,360,988 Relative Operating Value of Other Companies Owned by Company + -- ----------- Total Relative Value of Company = $19,360,988 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company .3672% X $19,360,988 = $ 71,094 Belk Enterprises, Inc. 22.2111% X 19,360,988 = 4,300,288 Hudson-Belk Company .1634% X 19,360,988 = 31,636 ----------- Total $ 4,403,018 =========== Total Relative Value of Company $19,360,988 Total Relative Value of Company Owned by Other Belk Companies - 4,403,018 ----------- Net Relative Value of Company = $14,957,970 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $14,957,970 / $1,155,623,145 = 1.2944% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (1.2944% X 60,000,007) / 84,152 = 9.2288 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 15 <PAGE> 1318 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share, and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR NINE MONTHS ENDED FEBRUARY 1, ENDED NOVEMBER 1, 1997 1997 ----------------- ----------------- <S> <C> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 14.24 $ 4.43 Book value per share(2)................................... 103.51 107.94 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 0.28 Book value per share(4)................................... 12.66 12.79 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 8.76 2.60 Book value per share...................................... 116.85 118.02 </TABLE> - --------------- (1) Based on 109,245 and 108,923 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997 and the nine-month period ended November 1, 1997, respectively. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 108,923 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the periods presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent, per share information for the Company is computed by multiplying the New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 16 <PAGE> 1319 SELECTED HISTORICAL FINANCIAL INFORMATION The following selected historical financial information of the Company presented below under the captions "Selected Statement of Income Data" and "Selected Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended February 1, 1997, are derived from the financial statements of the Company. The financial statements as of February 1, 1997 and for the then year ended have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Such financial statements, and the report thereon, are included elsewhere in this Prospectus Supplement. The selected data presented below for, and as of the end of, each of the years in the four-year period ended February 3, 1996 and for the nine-month periods ended November 2, 1996 and November 1, 1997, and as of November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. The information presented below under the caption "Selected Operating Data" is unaudited. Selected historical combined and pro forma financial data for the Belk Companies is included in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED ------------------------------------------------------------------- ------------------------- FEBRUARY 2, FEBRUARY 1, JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1993 1994 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> SELECTED STATEMENT OF INCOME DATA: Revenues...................... 28,349,643 31,616,313 30,765,044 30,286,164 28,604,139 19,784,642 14,777,209 Cost of goods sold............ 19,389,923 22,484,142 21,517,951 21,040,504 19,653,443 13,544,219 9,884,820 Depreciation and amortization................ 1,279,887 1,285,880 1,284,508 1,293,496 643,639 604,598 150,351 Income (loss) from continuing operations.................. (956,168) (497,423) (94,261) (424,246) 1,555,411 47,461 482,247 Net income (loss)............. (956,168) 224,140 (94,261) (424,246) 1,555,411 47,461 482,247 Net income (loss) per share(1).................... (8.58) 2.01 (0.85) (3.80) 14.24 0.44 4.43 Weighted average number of shares outstanding.......... 111,499 111,499 111,449 111,449 109,245 109,352 108,923 SELECTED BALANCE SHEET DATA: Accounts receivable -- net.... 4,785,365 5,258,516 5,090,533 5,190,920 5,440,289 5,206,150 4,632,144 Merchandise inventories....... 7,142,595 6,853,489 6,571,562 6,574,923 3,893,210 6,431,777 7,555,486 Working capital............... 10,760,816 10,488,113 7,527,451 7,222,215 10,438,939 7,613,497 9,840,230 Total assets.................. 22,453,831 19,494,967 17,075,187 15,774,450 13,037,259 14,738,458 19,548,177 Short-term debt............... -- -- -- -- -- -- -- Long-term debt................ 6,202,016 5,444,846 1,725,000 1,025,000 -- -- 5,000,000 Capitalized lease obligations................. -- -- -- -- -- -- -- Shareholders' equity.......... 11,393,829 10,450,736 10,356,475 9,932,229 11,274,532 9,766,583 11,756,779 Book value per share(2)....... 102.19 93.73 92.88 89.08 103.51 89.67 107.94 SELECTED OPERATING DATA: Number of stores at end of period...................... 8 8 6 6 3 3 4 Comparable store net revenue increases (decreases)....... 2.9% 13.6% 5.9% (2.4)% 3.6% 3.8% (0.3)% </TABLE> - --------------- (1) Based on the weighted average number of shares of Common Stock outstanding for each period presented. (2) Based on the number of outstanding shares of Common Stock at the end of each period presented. 17 <PAGE> 1320 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the historical financial condition and results of operations of the Company for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 which should be read in conjunction with the historical financial statements, including the notes thereto, included elsewhere in this Proxy Statement/Prospectus. GENERAL Certain Components of Net Income. Revenues include sales from retail operations and leased departments. Cost of goods sold include cost of merchandise, buying, and occupancy expense. Selling, general, and administrative expense("SG&A") includes payroll, advertising, credit and depreciation expense. RESULTS OF OPERATIONS The following tables sets forth, for the periods indicated, the percentage relationship to revenues of certain items in the Company's statements of income and other pertinent financial data. <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995(A) 1996(A) 1997(A) 1996 1997 ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold....................... 69.9 69.5 68.7 68.5 66.9 Selling, general and administrative expenses............................... 30.2 30.8 27.4 30.4 27.6 Income (loss) from operations............ (0.2) (0.3) 3.9 1.2 5.5 Interest expense, net.................... 1.3 1.2 0.8 0.9 0.3 Income tax expense (benefit)............. (1.1) (0.1) 2.1 0.1 1.9 Net income (loss)........................ (0.3) (1.4) 5.4 0.2 3.3 Comparable stores revenues increase (decrease)............................. 5.9 (2.4) 3.6 3.8 (0.3) Number of stores Opened................................. 0 0 0 0 1 Closed................................. 1 0 3 3 0 Total -- end of period................... 6 6 3 3 4 </TABLE> - --------------- (a) The fiscal years ended February 1, 1997 and January 31, 1995 consisted of 52 weeks. The fiscal year ended February 3, 1996 consisted of 368 days. COMPARISON OF NINE MONTHS ENDED NOVEMBER 1, 1997 AND NOVEMBER 2, 1996 Revenues. The Company's revenues for the nine months ended November 1, 1997 decreased 25.3%, or $5.0 million, from the same period in 1996 from $19.8 million to $14.8 million. The decrease was attributable to a revenues decrease of $7.0 million associated with the closing of 3 stores, which were sold to an unrelated third party, partially offset by revenues of a new store in Prattville, Alabama. Comparable store revenues for the nine months ended November 1, 1997 were even with the nine months ended November 2, 1996. Cost of Goods Sold. As a percentage of revenues, cost of goods sold decreased from 68.5% for the nine months ended November 2, 1996 to 66.9% for the nine months ended November 1, 1997. Cost of goods sold decreased 27.0%, or $3.6 million, from $13.5 million for the nine months ended November 2, 1996 to $9.9 million for the nine months ended November 1, 1997 primarily due to decreased revenues. Cost of merchandise decreases were experienced due to better inventory management and lower markdowns. A decrease was also experienced in occupancy expense. 18 <PAGE> 1321 Selling, General, and Administrative Expenses. SG&A decreased from 30.4% of revenues for the nine months ended November 2, 1996 to 27.6% of revenues for the nine months ended November 1, 1997. Such decrease, which amounted to $1.9 million, was primarily attributable to decreases in payroll, depreciation, and advertising expense. Interest Expense, Net. As a percentage of revenues, interest expense, net decreased from 0.9% for the nine months ended November 2, 1996 to 0.3% for the nine months ended November 1, 1997. Interest expense, net was $38 thousand for the nine months ended November 1, 1997 as compared to $0.2 million for the nine months ended November 2, 1996. The reduction in interest expense resulted from decreased average outstanding borrowings. Income Taxes. The effective income tax rate increased to 36.7% for the nine months ended November 1, 1997 from 25.2% for the nine months ended November 2, 1996. The 25.2% effective rate for the nine months ended November 2, 1996 differs from the federal statutory rate primarily due to permanent differences related to deferred compensation insurance. Net Income. Net income increased $0.4 million to 3.3% of revenues for the nine months ended November 1, 1997 compared to 0.2% of revenues for the nine months ended November 2, 1996. This increase was primarily attributable to the decrease in SG&A of 2.8%, as a percentage of revenues. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 Revenues. The Company's revenues in fiscal year 1997 decreased 5.6%, or $1.7 million, from fiscal year 1996 from $30.3 million to $28.6 million. The decrease was primarily attributable to the closing of the Talladega and Alexander City locations, which contributed a decrease in revenues of $2.5 million in fiscal year 1997. On a comparable store basis, revenues increased 3.6% compared to the first 52 weeks of fiscal year 1996. This increase was primarily due to an increase in revenues at the Cullman, Alabama store. Cost of Goods Sold. As a percentage of revenues, cost of goods sold decreased from 69.5% in fiscal year 1996 to 68.7% in fiscal year 1997 due to improved inventory management, especially in the Gadsden and Cullman stores. Cost of goods sold decreased 6.6%, or $1.3 million, from $21.0 million in fiscal year 1996 to $19.7 million in fiscal year 1997 primarily as a result of the decrease in revenues. Selling, General, and Administrative Expenses. As a percentage of revenues, SG&A decreased from 30.8% in fiscal year 1996 to 27.4% in fiscal year 1997. SG&A decreased 16.1%, or $1.5 million, primarily due to decreases in payroll expense realized through efficiencies implemented in the retail department stores, advertising, and depreciation expense. Although bad debt expense increased $0.1 million due to increased Belk propriety credit card sales volume and industry-wide increases in personal bankruptcies, the increase was substantially offset by an increase in finance charge revenue of $0.1 million, which caused bad debt expense to have an immaterial impact on SG&A. Interest Expense, Net. Interest expense, net was $0.4 million in fiscal year 1996 and $0.2 million in fiscal year 1997. The decrease in interest expense was due to a decrease in the average borrowings outstanding which resulted from the repayment of the $1.0 million term loan in October, 1996. Income Taxes. The effective income tax rate increased to 28.2% in fiscal year 1997 from 8.6% in fiscal year 1996. The 8.6% effective rate in fiscal year 1996 differs from the federal statutory rate primarily due to a revaluation of deferred tax assets assuming future realization of those assets would be at a higher effective tax rate. Net Income. Net income increased $2.0 million to 5.4% of revenues in fiscal year 1997 compared to (1.4%) of revenues in fiscal year 1996. The increase is primarily attributable to the gain on the sale of property and fixtures of the Tupelo, Mississippi store, which was closed, of $1.3 million in fiscal year 1997. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 3, 1996 AND JANUARY 31, 1995 Revenues. The Company's revenues in fiscal year 1996 decreased by 1.6%, or $0.5 million, from $30.8 million in fiscal year 1995 to $30.3 million in fiscal year 1996. Adjusting for the impact of the additional days 19 <PAGE> 1322 in fiscal year 1996, comparable store revenues decreased 2.4%. These decreases were experienced equally in the Spring and Fall selling seasons by most of the stores. The Cullman, Alabama store, however, experienced a very strong increase in revenues of 5.6% or $0.3 million. Cost of Goods Sold. As a percentage of revenues, cost of goods sold decreased from 69.9% in fiscal year 1995 to 69.5% in fiscal year 1996 due to improved inventory management, especially in the Gadsden and Cullman stores. Cost of goods sold decreased 2.2%, or $0.5 million, from $21.5 million in fiscal year 1995 to $21.0 million in fiscal year 1996 primarily due to a decrease in revenues. Decreases were also experienced in occupancy and distribution expense. Selling, General, and Administrative Expenses. SG&A increased slightly by 0.3%, or $25.0 thousand, from 30.2% of revenues in fiscal year 1995 to 30.8% of revenues in fiscal year 1996. Interest Expense, Net. Interest expense, net was unchanged at $0.4 million for fiscal years 1995 and 1996. Income Taxes. The effective income tax rate decreased to 8.6% in fiscal year 1996 from 78.6% in fiscal year 1995. The 8.6% effective rate in fiscal year 1996 differs from the federal statutory rate primarily due to a revaluation of deferred tax assets. In fiscal year 1995, a deferred tax asset for net operating loss carryforwards was recognized assuming future realization of that asset. Net Loss. Net loss increased $0.3 million to 1.4% of revenues in fiscal year 1996 from 0.3% of revenues in fiscal year 1995. This increase in net loss was primarily due to the adjustment made in fiscal year 1996 to revalue the deferred tax assets discussed above. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenues, operating income, and net income. The highest revenue period for the Company is the fourth quarter which includes the Christmas selling season. A disproportionate amount of the Company's revenues and a substantial amount of the Company's operating and net income are realized during the fourth quarter. If for any reason the Company's revenues were below seasonal norms during the fourth quarter, the Company's annual results of operations could be adversely affected. The Company's inventory levels generally reach their highest in anticipation of increased revenues during these months. The following table illustrates the seasonality of revenues by quarter as a percentage of the full year for the fiscal years indicated. <TABLE> <CAPTION> 1995 1996 1997 ---- ---- ---- <S> <C> <C> <C> First quarter............................................... 22.3% 22.5% 25.2% Second quarter.............................................. 21.2 20.5 21.4 Third quarter............................................... 23.5 23.4 22.6 Fourth quarter.............................................. 33.0 33.6 30.8 </TABLE> The Company's quarterly results of operations could also fluctuate significantly as a result of a variety of factors, including the timing of new store openings and remodelings. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash on hand, cash flow from operations, and borrowings under credit facilities. In fiscal year 1997, the Company had sufficient cash flows from operations and credit facilities to fund its working capital needs, capital expenditures, and equity purchases. Net cash provided (used) by operations was $3.9 million, $0.7 million, and ($0.8) million for the 1995, 1996, and 1997 fiscal years, respectively. The decrease in cash flow in fiscal year 1996 was primarily attributable to reduced net income and the change in affiliate payables and receivables. In fiscal year 1995, the Company received cash from an affiliate in the net amount of $3.3 million. Investing activities included capital expenditures, primarily for remodeled stores and the purchases and sales of property and equipment related to store openings and closings. Capital expenditures, primarily for new 20 <PAGE> 1323 and remodeled stores, amounted to $5.5 million in the first nine months of fiscal 1998 and $15 thousand in the comparable period in fiscal year 1997. Capital expenditures amounted to $153.9 thousand, $52.6 thousand, and $54.5 thousand for the 1995, 1996 and 1997 fiscal years, respectively. In fiscal year 1995, the Company closed the Huntsville, Alabama store. In fiscal year 1997, three stores were closed. Proceeds from the sale of the Tupelo, Mississippi store, which was closed, amounted to $2.0 million. The Company operated 6, 6, and 3 department stores, respectively, for the 1995, 1996, and 1997 fiscal years. A new store in Prattville, Alabama was opened during fiscal year 1998 adding 51,000 square feet. Financing activities included purchase of common stock and payments or additional borrowings on credit facilities. The Company's total indebtedness at November 1, 1997 was $5.0 million, comprised of $0.6 million of current maturities of long-term debt and $4.4 million of long-term debt. The interest rate on the $5.0 million of total indebtedness is variable based on LIBOR. The Company has entered into interest rate swap agreements with various financial institutions to manage the exposure to changes in interest rates on its LIBOR based indebtedness. During fiscal year 1997, the Company repurchased common stock from several major shareholders for $0.2 million. IMPACT OF INFLATION While it is difficult to determine the precise effects of inflation, management does not believe inflation had a material impact on the financial statements for the periods presented. BUSINESS OF THE COMPANY General. The Company operates four retail department stores in Cullman Shopping Center in Cullman, Gadsden Mall in Gadsden and Premiere Place in Prattville, Alabama and in Southgate Plaza in Corinth, Mississippi. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The stores are managed out of the Kuhne/Greiner group office in Greenville, South Carolina. In 1996, the Company sold the leases, fixed assets and inventory of its stores in Talladega and Alexander City, Alabama to Peebles, Inc. The net proceeds to the Company from the sale of these stores were $1,551,237. In 1997, the Company closed its store in Tupelo, Mississippi and sold the lease and fixed assets to Proffitts, Inc. The net proceeds to the Company from the sale of this store were $1,749,076. Facilities. Three of the Company's four store buildings are leased under long-term leases and the Prattville store building was built on land leased by the Company under a long-term lease. The leases have termination dates ranging from 2002 through 2017. The floor area of the leased buildings ranges from 26,000 to 74,000 square feet and the Prattville building contains 51,000 square feet of floor area. The stores at Cullman Shopping Center and Gadsden Mall were expanded in 1997. The Company believes these facilities are adequate to meet its current needs. Competition. Specific competitors in the Company's market include McRae's, Penney, Goody's and Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 21 <PAGE> 1324 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)(g)..................................... 46,998 43.1% Thomas M. Belk, Jr. (Director and Executive Officer) (c)(f)(g)(h).............................................. 34,056 31.3% H. W. McKay Belk (Director and Executive Officer) (c)(f)(g)(i).............................................. 34,255 31.4% John R. Belk (Director and Executive Officer) (c)(f)(g)(j).............................................. 34,011 31.2% Henderson Belk (Director) (d)(e)............................ 1,472 1.4% Sarah Belk Gambrell (Director) (d)(e)....................... 17,757 16.3% Leroy Robinson (c).......................................... 7,864 7.2% Katherine McKay Belk (c).................................... 9,349 8.6% Katherine Belk Morris (c)(k)................................ 9,615 8.8% Karl G. Hudson, Jr. (Director).............................. 291 * Karl G. Hudson, III (Director).............................. 3,778 3.5% John A. Kuhne (Director) (l)................................ 3,817 3.5% R. E. Greiner (Director).................................... 0 * Welch Bostick, Jr. (Officer)................................ 0 * Lucy S. Kuhne (m)(n)........................................ 11,041 10.1% Kate Simpson (m)(n)......................................... 8,325 7.6% Claire M. Russo (m)(n)...................................... 7,247 6.7% Belk Enterprises, Inc....................................... 24,143 22.2% All Directors and Executive Officers as a group (9 persons).................................................. 75,429 69.2% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Karl G. Hudson, Jr. -- 319 First Federal Building, Raleigh, N.C.; Karl G. Hudson, III, Hudson-Belk Group Office, 319 Fayetteville Street, Raleigh, N.C. 27601; John A. Kuhne, Lucy S. Kuhne, Kate Simpson, Claire E. Russo, R. E. Greiner and Welch Bostick, Jr. -- 14 S. Main Street, Greenville, S.C. 29601; Belk Enterprises, Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 2,869 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 1 share held by Mary Claudia Belk Irrevocable Trust dated 1/4/94. Claudia W. Belk, Trustee, is John M. Belk's wife. 22 <PAGE> 1325 (c) Includes 7,864 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (d) Includes 855 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (e) Includes 617 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (f) Includes 2,869 shares held by Belk Enterprises, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of such corporation, under authority given by the directors of such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (g) Includes 400 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (h) Includes 304 shares held by Thomas M. Belk, Jr. as custodian for his minor children. (i) Includes 456 shares held by H. W. McKay Belk as custodian for his minor children. (j) Includes 152 shares held by John R. Belk as custodian for his minor children. (k) Includes 456 shares held by Katherine Belk Morris as custodian for her minor children. (l) Includes 3,817 shares held by John A. Kuhne's wife, Lucy S. Kuhne. (m) Includes 3,782 shares held by the Estate of William Henry Belk Simpson. Voting and investment power is shared by the Personal Representatives, who are Kate Simpson, Lucy Kuhne and Claire Russo. (n) Includes 3,442 shares held by Simpson Enterprises, Inc. Voting and investment power is shared by the Personal Representatives of the Estate of William Henry Belk Simpson, who are Kate Simpson, Lucy Kuhne and Claire Russo. 23 <PAGE> 1326 INDEX TO HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Report of KPMG Peat Marwick LLP, Independent Auditors....... F-2 Balance Sheets.............................................. F-3 Statements of Operations.................................... F-4 Statements of Shareholders' Equity.......................... F-5 Statements of Cash Flows.................................... F-6 Notes to Financial Statements............................... F-7 </TABLE> F-1 <PAGE> 1327 INDEPENDENT AUDITORS' REPORT The Board of Directors of Belk of Miss., Inc.: We have audited the accompanying balance sheet of Belk of Miss., Inc. as of February 1, 1997, and the related statements of operations, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Belk of Miss., Inc. at February 1, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Charlotte, North Carolina November 14, 1997 F-2 <PAGE> 1328 BELK OF MISS., INC. BALANCE SHEETS <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents............................. $ 469,120 $ 351,529 $ 245,816 Accounts receivable, net.............................. 5,190,920 5,440,289 4,632,144 Merchandise inventory................................. 6,574,923 3,893,210 7,555,486 Prepaid income taxes.................................. -- -- 85,234 Receivables from affiliates........................... -- 1,839,609 179,212 Deferred income taxes................................. 89,206 144,294 177,377 Prepaid expenses and other current assets............. 393,890 223,323 151,328 ----------- ----------- ----------- Total current assets.................................... 12,718,059 11,892,254 13,026,597 Deferred income taxes................................... 695,682 134,851 165,768 Property and equipment, net............................. 2,269,298 955,802 6,273,603 Other noncurrent assets................................. 91,411 54,352 82,209 ----------- ----------- ----------- Total assets............................................ $15,774,450 $13,037,259 $19,548,177 =========== =========== =========== LIABILITIES, DEFERRED INCOME AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable...................................... $ 1,632,799 $ 986,764 $ 1,975,289 Accrued expenses...................................... 412,647 371,368 611,078 Accrued income taxes.................................. -- 95,183 -- Payables to affiliates................................ 2,425,398 -- -- Current installments of long-term debt................ 1,025,000 -- 600,000 ----------- ----------- ----------- Total current liabilities............................... 5,495,844 1,453,315 3,186,367 Long-term debt, excluding current installments.......... -- -- 4,400,000 Deferred compensation................................... 244,577 245,445 141,064 Other noncurrent liabilities............................ 63,758 63,967 63,967 ----------- ----------- ----------- Total liabilities....................................... 5,804,179 1,762,727 7,791,398 ----------- ----------- ----------- Deferred income......................................... 38,042 -- -- ----------- ----------- ----------- Shareholders' equity: Common stock; $1 par value; Class A authorized 300,000 shares; issued and outstanding 111,499 at February 3, 1996 and 108,923 at February 1, 1997 and November 1, 1997; Class B authorized 6,000 shares; issued and outstanding 0 shares.................... 111,499 108,923 108,923 Retained earnings..................................... 9,820,730 11,165,609 11,647,856 ----------- ----------- ----------- Total shareholders' equity.............................. 9,932,229 11,274,532 11,756,779 ----------- ----------- ----------- Total liabilities, deferred income and shareholders' equity................................................ $15,774,450 $13,037,259 $19,548,177 =========== =========== =========== </TABLE> See accompanying notes to financial statements. F-3 <PAGE> 1329 BELK OF MISS., INC. STATEMENTS OF OPERATIONS <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Revenues........................ $30,765,044 $30,286,164 $28,604,139 $19,784,642 $14,777,209 Cost of goods sold (including occupancy and buying expenses)..................... 21,517,951 21,040,504 19,653,443 13,544,219 9,884,820 Selling, general and administrative expenses....... 9,297,146 9,322,184 7,825,952 6,008,796 4,077,555 ----------- ----------- ----------- ----------- ----------- Income (loss) from operations... (50,053) (76,524) 1,124,744 231,627 814,834 Interest expense, net........... (407,929) (374,603) (216,621) (170,855) (38,287) Gain on sale of property and equipment..................... 39,775 34,073 1,288,053 -- -- Other income (expense), net..... (22,441) (46,992) (30,332) 2,689 (14,300) ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes......................... (440,648) (464,046) 2,165,844 63,461 762,247 Income taxes.................... (346,387) (39,800) 610,433 16,000 280,000 ----------- ----------- ----------- ----------- ----------- Net income (loss)............... $ (94,261) $ (424,246) $ 1,555,411 $ 47,461 $ 482,247 =========== =========== =========== =========== =========== Earnings (loss) per share....... $ (0.85) $ (3.80) $ 14.24 $ 0.44 $ 4.43 =========== =========== =========== =========== =========== Weighted average shares......... 111,499 111,499 109,245 109,352 108,923 =========== =========== =========== =========== =========== </TABLE> See accompanying notes to financial statements. F-4 <PAGE> 1330 BELK OF MISS., INC. STATEMENTS OF SHAREHOLDERS' EQUITY <TABLE> <CAPTION> COMMON RETAINED STOCK EARNINGS TOTAL -------- ----------- ----------- <S> <C> <C> <C> Balance at February 1, 1994 (unaudited)................... $111,499 $10,339,237 $10,450,736 Net loss (unaudited)...................................... -- (94,261) (94,261) -------- ----------- ----------- Balance at January 31, 1995 (unaudited)................... 111,499 10,244,976 10,356,475 Net loss (unaudited)...................................... -- (424,246) (424,246) -------- ----------- ----------- Balance at February 3, 1996............................... 111,499 9,820,730 9,932,229 Net income................................................ -- 1,555,411 1,555,411 Repurchase of stock (2,576 shares)........................ (2,576) (210,532) (213,108) -------- ----------- ----------- Balance at February 1, 1997............................... 108,923 11,165,609 11,274,532 Net income (unaudited).................................... -- 482,247 482,247 -------- ----------- ----------- Balance at November 1, 1997 (unaudited)................... $108,923 $11,647,856 $11,756,779 ======== =========== =========== </TABLE> See accompanying notes to financial statements. F-5 <PAGE> 1331 BELK OF MISS., INC. STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED ----------------------------------------- --------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ------------ ------------ ----------- ------------ ------------ (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Cash flows from operating activities: Net income (loss)..................... $ (94,261) $ (424,246) $ 1,555,411 $ 47,461 $ 482,247 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Deferred income taxes................. (339,623) (86,375) 505,743 16,000 (64,000) Deferred income....................... (41,338) (39,737) (38,042) (28,377) -- Depreciation and amortization......... 1,284,508 1,293,496 643,639 604,598 150,351 Gain on sale of property and equipment........................... (39,775) (34,073) (1,288,053) -- -- (Increase) decrease in: Accounts receivable................. 167,983 (100,387) (249,369) (15,230) 808,145 Merchandise inventory............... 281,927 (3,361) 2,681,713 143,146 (3,662,276) Receivables from affiliates......... 7,800,005 -- (1,839,609) -- 1,660,397 Prepaid income taxes................ -- -- -- (9,507) (85,234) Other assets........................ 184,653 280,294 207,626 155,920 44,138 Increase (decrease) in: Accounts payable and accrued expenses.......................... (815,463) (392,660) (687,314) 399,455 1,228,235 Payables to affiliates.............. (4,505,547) 213,872 (2,425,398) (710,441) -- Accrued income taxes................ (2,633) -- 95,183 -- (95,183) Deferred compensation and other liabilities....................... 42,234 40,017 1,077 (5,983) (104,381) ------------ ----------- ----------- ----------- ----------- Net cash provided (used) by operating activities............................ 3,922,670 746,840 (837,393) 597,042 362,439 ------------ ----------- ----------- ----------- ----------- Cash flows from investing activities: Purchases of property and equipment... (153,915) (52,614) (54,466) (15,429) (5,468,152) Proceeds from sale of property and equipment........................... 39,719 5,890 2,012,376 -- -- ------------ ----------- ----------- ----------- ----------- Net cash provided (used) by investing activities............................ (114,196) (46,724) 1,957,910 (15,429) (5,468,152) ------------ ----------- ----------- ----------- ----------- Cash flows from financing activities: Proceeds from issuance of long-term debt................................ -- -- -- -- 5,000,000 Principal payments on long-term debt................................ (3,719,846) (700,000) (1,025,000) (525,000) -- Repurchase of stock................... -- -- (213,108) (213,107) -- ------------ ----------- ----------- ----------- ----------- Net cash provided (used) by financing activities............................ (3,719,846) (700,000) (1,238,108) (738,107) 5,000,000 ------------ ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents........................... 88,628 116 (117,591) (156,494) (105,713) Cash and cash equivalents at beginning of period............................. 380,376 469,004 469,120 469,120 351,529 ------------ ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period................................ $ 469,004 $ 469,120 $ 351,529 $ 312,626 $ 245,816 ============ =========== =========== =========== =========== Supplemental disclosures of cash flow information: Interest paid......................... $ 425,506 $ 393,566 $ 249,883 $ 178,130 $ 110,601 Income taxes paid..................... 26,723 2,285 6,400 1,250 592,700 </TABLE> See accompanying notes to financial statements. F-6 <PAGE> 1332 BELK OF MISS., INC. NOTES TO FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES COMPANY OPERATIONS Belk of Miss., Inc. (the "Company") operates retail department stores in Mississippi and Alabama. FISCAL YEAR Starting in fiscal year 1996, the Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1996 and 1997 ended on February 3, 1996 and February 1, 1997 and included 368 and 365 days, respectively. Fiscal year 1995 ended on Tuesday, January 31, 1995 and included 364 days. UNAUDITED FINANCIAL STATEMENTS The financial statements as of February 3, 1996 and for the years ended January 31, 1995 and February 3, 1996, and as of and for the periods ended November 2, 1996 and November 1, 1997 are unaudited. In the opinion of management, such financial statements reflect all adjustments necessary to present fairly the Company's financial position, results of operations and cash flows. The financial statements for the interim periods ended November 2, 1996 and November 1, 1997 are not necessarily indicative of the results of operations for a full fiscal year. REVENUES Revenues include sales from retail operations, net of returns. COST OF GOODS SOLD Cost of goods sold includes occupancy and buying expenses. Occupancy expenses include rent, utilities and real estate taxes. Buying expenses include payroll and travel expenses associated with the buying function. MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market as determined by the retail inventory method. FINANCE CHARGES Selling, general and administrative expenses in the statements of operations are reduced by finance charge income arising from customer accounts receivable. Finance charge revenue amounted to approximately $680,000, $641,000 and $735,000 in fiscal years 1995, 1996 and 1997, respectively. PROPERTY AND EQUIPMENT, NET Property and equipment owned by the Company is stated at cost less accumulated depreciation. Depreciation is provided utilizing straight-line and various accelerated methods over the shorter of estimated asset lives or related lease terms. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement bases and the respective tax bases of the assets and liabilities and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The F-7 <PAGE> 1333 BELK OF MISS., INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. PRE-OPENING COSTS Store pre-opening costs are expended as incurred. CASH EQUIVALENTS Cash equivalents include liquid investments with an original maturity of 90 days or less. ADVERTISING Advertising costs are expensed as incurred and amounted to $1,124,064, $1,271,273 and $1,067,159 in fiscal years 1995, 1996 and 1997, respectively. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) ACCOUNTS RECEIVABLE, NET Customer receivables arise primarily under open-end revolving credit accounts used to finance purchases of merchandise from the Company. These accounts have various billing and payment structures, including varying minimum payment levels and finance charge rates. Installments of deferred payment accounts receivable maturing after one year are included in current assets in accordance with industry practice. The Company provides an allowance for doubtful accounts which is determined based on a number of factors, including the risk characteristics of the portfolio, historical charge-off patterns, and management judgment. Accounts receivable, net consists of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Customer receivables............................... $5,278,381 $5,591,164 $4,807,467 Other.............................................. 34,171 21,169 40,871 Less allowance for doubtful accounts............... (121,632) (172,044) (216,194) ---------- ---------- ---------- Accounts receivable, net........................... $5,190,920 $5,440,289 $4,632,144 ========== ========== ========== </TABLE> F-8 <PAGE> 1334 BELK OF MISS., INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Changes in allowance for doubtful accounts are as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Balance, beginning of period...................... $ 82,844 $ 83,181 $ 121,632 $ 121,632 $ 172,044 Charged to expense............ 153,876 170,672 274,214 153,797 278,586 Net uncollectible balances written off................. (153,539) (132,221) (223,802) (153,797) (234,436) --------- --------- --------- --------- --------- Balance, end of period........ $ 83,181 $ 121,632 $ 172,044 $ 121,632 $ 216,194 ========= ========= ========= ========= ========= </TABLE> (3) PROPERTY AND EQUIPMENT, NET Details of property and equipment are as follows: <TABLE> <CAPTION> ESTIMATED FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, LIVES 1996 1997 1997 --------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> Buildings.............................. 30-50 $ 1,742,108 $ 964,214 $ 3,739,802 Furniture, fixtures and equipment...... 5-7 7,085,314 4,335,701 6,569,351 Construction in progress............... N/A 4,369 62,471 521,121 ----------- ----------- ----------- 8,831,791 5,362,386 10,830,274 Less accumulated depreciation and amortization......................... (6,562,493) (4,406,584) (4,556,671) ----------- ----------- ----------- Property and equipment, net............ $ 2,269,298 $ 955,802 $ 6,273,603 =========== =========== =========== </TABLE> (4) ACCRUED EXPENSES Accrued expenses are comprised of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Salaries, wages and employee benefits............... $118,470 $164,944 $232,950 Taxes, other than income............................ 99,850 89,069 132,931 Rent................................................ 66,978 49,574 29,271 Interest............................................ 2,177 2,522 13,965 Other............................................... 125,172 65,259 201,961 -------- -------- -------- $412,647 $371,368 $611,078 ======== ======== ======== </TABLE> F-9 <PAGE> 1335 BELK OF MISS., INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (5) BORROWINGS Long-term debt consists of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Unsecured term loan agreement, due October 1996; interest payable at 50 basis points above LIBOR.......................................... $1,025,000 $ -- $ -- Unsecured term loan agreement, due January 2003; interest payable at 80 basis points above LIBOR (5.65% as of November 1, 1997)................. -- -- 5,000,000 ---------- ---------- ---------- 1,025,000 -- 5,000,000 Less current installments........................ (1,025,000) -- (600,000) ---------- ---------- ---------- Long-term debt excluding current installments.... $ -- $ -- $4,400,000 ========== ========== ========== </TABLE> The Company's loan agreement places restrictions on mergers, consolidations, acquisitions, sales of assets, and debt. It also contains certain financial requirements including tangible net worth and cash flow coverage. The Company was in compliance with such restrictions at November 1, 1997 except the tangible net worth and cash flow coverage provisions which are not applicable until the fiscal year ending January 31, 1998. (6) LEASES The Company leases certain stores, warehouse facilities and equipment. The majority of these leases will expire within the next 12 years. The leases usually contain renewal options and provide for payment by the lessee of real estate taxes and other expenses, and, in certain instances, increased rentals based on percentage of sales. Future minimum lease payments under noncancelable leases as of February 1, 1997 are as follows: <TABLE> <CAPTION> FISCAL YEAR OPERATING ----------- ---------- <S> <C> 1998........................................................ $ 389,274 1999........................................................ 389,274 2000........................................................ 389,274 2001........................................................ 389,274 2002........................................................ 389,274 After 2002.................................................. 2,039,543 ---------- Total....................................................... $3,985,913 ========== </TABLE> Rental expense for all operating leases consists of the following: <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Buildings: Minimum rentals................................... $896,538 $820,806 $779,288 Contingent rentals................................ 73,569 69,717 55,670 Equipment........................................... 27,040 14,828 9,991 -------- -------- -------- Total rental expense................................ $997,147 $905,351 $844,949 ======== ======== ======== </TABLE> F-10 <PAGE> 1336 BELK OF MISS., INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Contingent rentals are determined on the basis of a percentage of sales in excess of stipulated minimums for certain store facilities. (7) INCOME TAXES Federal and state income tax expense (benefit) is as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED ---------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ------------ ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Current: Federal....................... $ 1,096 $ 43,334 $ 52,900 $ -- $298,000 State......................... (7,860) 3,241 51,790 -- 46,000 --------- -------- -------- ------- -------- (6,764) 46,575 104,690 -- 344,000 Deferred: Federal....................... (193,910) (63,970) 426,576 16,000 (55,000) State......................... (145,713) (22,405) 79,167 -- (9,000) --------- -------- -------- ------- -------- (339,623) (86,375) 505,743 16,000 (64,000) --------- -------- -------- ------- -------- Income taxes.................... $(346,387) $(39,800) $610,433 $16,000 $280,000 ========= ======== ======== ======= ======== </TABLE> A reconciliation between income taxes computed using the effective income tax rate and the federal statutory income tax rate of 34% is as follows: <TABLE> <CAPTION> YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Income tax at the statutory federal rate............ $(149,820) $(157,776) $ 736,387 State income taxes, net of federal income tax benefit........................................... (14,541) (16,067) 70,842 Permanent differences............................... (15,185) (5,584) (4,524) Change in valuation allowance....................... (185,709) -- -- Graduated rate difference........................... 39,658 58,006 (129,951) Revaluation of deferred taxes....................... (15,401) 68,277 (60,846) Other............................................... (5,389) 13,344 (1,475) --------- --------- --------- Income taxes........................................ $(346,387) $ (39,800) $ 610,433 ========= ========= ========= </TABLE> F-11 <PAGE> 1337 BELK OF MISS., INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Deferred taxes based upon differences between the financial statement and tax bases of assets and liabilities and available tax carryforwards consist of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1966 1997 ----------- ----------- (UNAUDITED) <S> <C> <C> Deferred tax assets: Tax carryovers............................................ $673,519 $100,416 Benefit plan costs........................................ 77,982 99,161 Allowance for doubtful accounts........................... 30,763 54,353 Inventory capitalization.................................. 39,925 30,507 Other..................................................... 9,621 17,114 -------- -------- Gross deferred tax assets................................... 831,810 301,551 -------- -------- Deferred tax liabilities: Markdown allowance........................................ 25,894 22,406 Prepaid pension cost...................................... 8,628 -- Other..................................................... 12,400 -- -------- -------- Gross deferred tax liabilities.............................. 46,922 22,406 -------- -------- Net deferred tax assets..................................... $784,888 $279,145 ======== ======== </TABLE> At February 1, 1997, the Company has alternative minimum tax credit carryforwards of approximately $100,000 which are available to reduce future federal regular income taxes, if any, over an indefinite period. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the temporary differences becoming deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future income, and tax planning strategies in making this assessment. (8) BENEFIT PLANS The Company participates in the Belk Pension Plan, a defined benefit multi-employer plan that covers substantially all of the employees of the Belk companies. Pension expense allocated to the Company was $23,017, $26,510 and $13,770 for fiscal years 1995, 1996 and 1997, respectively. Because the Belk Pension Plan is a multi-employer plan, allocation of plan assets to the Company is not practical. The Company also participates in the Belk Employees' Group Medical Plan that provides medical benefits to substantially all employees of the Belk companies. This Plan is "self-funded" for medical benefits through a 501(c)(9) Trust. The Company also participates in the Group Life Insurance Plan that provides life insurance to its employees, and is fully insured through a contract issued by an insurance company. Contributions by the Company under the Belk Employees' Group Medical Plan and the Group Life Insurance Plan amounted to approximately $213,000, $205,000 and $167,000 in fiscal years 1995, 1996 and 1997, respectively. The Company participates in the Belk Profit Sharing Plan, a contributory, defined contribution multi-employer plan that provides benefits for substantially all employees of the Belk companies. The cost of the plan generally represents 10% of profits, as defined, and amounted to $0, $0 and $105,421 in fiscal years 1995, 1996 and 1997, respectively. Certain eligible employes also participate in a non-qualified Deferred Compensation Plan (DCP). Participants in the plan have elected to defer a portion of their compensation subject to certain limitations prescribed by the DCP. The Company is required to pay interest on the employees' deferred compensation at F-12 <PAGE> 1338 BELK OF MISS., INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) various rates between 9% and 15%. Total interest expense related to this plan and charged to operations was $29,365, $31,889 and $31,146, in fiscal years 1995, 1996 and 1997, respectively. The Company provides postretirement benefits to certain retired employees in the form of medical and life insurance premiums. The Company recorded approximately $23,000, $26,000 and $25,000 as selling, general and administrative expense in the fiscal years 1995, 1996 and 1997 respectively. (9) RELATED PARTY TRANSACTIONS The Belk Center, Inc. services the Company's customer accounts receivable. The Company paid The Belk Center, Inc. approximately $396,000, $450,000 and $405,000 during fiscal years 1995, 1996 and 1997, respectively, for these services. Various other selling, general, administrative and transaction processing services are provided by Belk Stores Services, Inc. ("BSS"). The Company paid BSS approximately $595,000, $702,000 and $547,000 during fiscal years 1995, 1996 and 1997, respectively, for these services, not including the transaction processing services. The Company paid approximately $437,000, $494,000 and $435,000 during fiscal years 1995, 1996 and 1997, respectively for transaction processing fees. The Company had a demand deposit with an affiliated company at February 3, 1996 and February 1, 1997 of $209,000 and $37,000, respectively, which is included in cash and cash equivalents in the accompanying balance sheets. The Company may participate in operational, investing and financing activities with other Belk companies. (10) FAIR VALUE OF FINANCIAL INSTRUMENTS For financial instruments which are short-term in nature, such as cash and cash equivalents, accounts receivable, receivables from affiliates, accounts payable, payables to affiliates and accrued expenses, carrying values approximate fair values. The carrying values of the Company's variable rate long-term debt are reasonable estimates of fair value. F-13 <PAGE> 1339 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL TITLE 79, CHAPTER 4 MISSISSIPPI BUSINESS CORPORATIONS ACT STATE OF MISSISSIPPI ARTICLE 13 DISSENTERS' RIGHTS <TABLE> <CAPTION> BEGINNING SECTION ----------- <S> <C> <C> SUBARTICLE A. Right to Dissent and Obtain Payment for Shares.............. 79-4-13.01 SUBARTICLE B. Procedure for Exercise of Dissenters' Rights................ 79-4-31.20 SUBARTICLE C. Judicial Appraisal of Shares................................ 79-4-13.30 </TABLE> SUBARTICLE A RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES <TABLE> <CAPTION> SECTION - ------- <S> <C> 79-4-13.01. Definitions. 79-4-13.02. Right to dissent. 79-4-13.03. Dissent by nominees and beneficial owners. </TABLE> SEC. 79-4-13.01. DEFINITIONS. In this article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Section 79-4-13.02 and who exercises that right when and in the manner required by Sections 79-4-13.20 through 79-4-13.28. (3) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. A-1 <PAGE> 1340 SEC. 79-4-13.02. RIGHT TO DISSENT. (a) A Shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party (i) if shareholder approval is required for the merger by Section 79-4-11.03 or the articles of incorporation and the shareholder is entitled to vote on the merger, or (ii) if the corporation is a subsidiary that is merged with its parent under Section 79-4-11.04; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange, including a sale in dissolution, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one (1) year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: (i) Alters or abolishes a preferential right of the shares; (ii) Creates, alters or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; or (v) Reduces the number of shares owned by the shareholder to a fraction of a share if the fraction share so created is to be acquired for cash under Section 79-4-6.04; or (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) Nothing in subsection (a)(4) shall entitle a shareholder of a corporation to dissent and obtain payment for his shares as a result of an amendment of the articles of incorporation exclusively for the purpose of either (i) making such corporation subject to application of the Mississippi Control Share Act, or (ii) making such act inapplicable to a control share acquisition of such corporation. (c) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. SEC. 79-4-13.03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. A-2 <PAGE> 1341 (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder or over which he has power to direct the vote. SUBARTICLE B PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS <TABLE> <CAPTION> SECTION - ------- <S> <C> 79-4-13.20. Notice of dissenters' rights. 79-4-13.21. Notice of intent to demand payment. 79-4-13.22. Dissenters' notice. 79-4-13.23. Duty to demand payment. 79-4-13.24. Share restrictions. 79-4-13.25. Payment. 79-4-13.26. Failure to take action. 79-4-13.27. After-acquired shares. 79-4-13.28. Procedure if shareholder dissatisfied with payment or offer. </TABLE> SEC. 79-4-13.20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under Section 79-4-13.02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this article and be accompanied by a copy of this article. (b) If corporate action creating dissenters' rights under Section 79-4-13.02 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Section 79-4-13.22. SEC. 79-4-13.21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under Section 79-4-13.02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights (1) must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated, and (2) must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirement of subsection (a) is not entitled to payment for his shares under this article. SEC. 79-4-13.22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under Section 79-4-13.02 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of Section 79-4-13.21. (b) The dissenters' notice must be sent no later than ten (10) days after the corporate action was taken, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; A-3 <PAGE> 1342 (3) Supply a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and requires that the person asserting dissenters' rights certify whether or not he acquired beneficial ownership of the shares before that date; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than thirty (30) nor more than sixty (60) days after the date the subsection (a) notice is delivered; and (5) Be accompanied by a copy of this article. SEC. 79-4-13.23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in Section 79-4-13.22 must demand payment, certify whether he acquired beneficial ownership of the shares before the date required to be set forth in the dissenter's notice pursuant to Section 79-4-13.22(b)(3), and deposit his certificate in accordance with the terms of the notice. (b) The shareholder who demands payment and deposits his shares under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article. SEC. 79-4-13.24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertified shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Section 79-4-13.26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 79-4-13.25. PAYMENT. (a) Except as provided in Section 79-4-13.27, as soon as the proposed corporate action is taken, or upon receipt of a payment demand, the corporation shall pay each dissenter who complied with Section 79-4-13.23 the amount the corporation estimates to be the fair value of his shares, plus accrued interest. (b) The payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than sixteen (16) months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenters' right to demand payment under Section 79-4-13.28; and (5) A copy of this article. SEC. 79-4-13.26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within sixty (60) days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. A-4 <PAGE> 1343 (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Section 79-4-13.22 and repeat the payment demand procedure. SEC. 79-4-13.27. AFTER-ACQUIRED SHARES. (a) A corporation may elect to withhold payment required by Section 79-4-13.25 from a dissenter unless he was the beneficial owner of the shares before the date set forth in the dissenters' notice as the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action. (b) To the extent the corporation elects to withhold payment under subsection (a), after taking the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept in full satisfaction of his demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated and a statement of the dissenter's right to demand payment under Section 79-4-13.28. SEC. 79-4-13.28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate (less any payment under Section 79-4-13.25), or reject the corporation's offer under Section 79-13.27 and demand payment of the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under Section 79-4-13.25 or offered under Section 79-4-13.27 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under Section 79-4-13.25 within sixty (60) days after the date set for demanding payment; or (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within sixty (60) days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notifies the corporation of his demand in writing under subsection (a) within thirty (30) days after the corporation made or offered payment for his shares. SUBARTICLE C JUDICIAL APPRAISAL OF SHARES <TABLE> <CAPTION> SECTION - ------- <S> <C> 79-4-13.30. Court action. 79-4-13.31. Court costs and counsel fees. </TABLE> SEC. 79-4-13.30. COURT ACTION. (a) If a demand for payment under Section 79-4-13.28 remains unsettled, the corporation shall commence a proceeding within sixty (60) days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding in the chancery court of the county where a corporation's principal office (or, if none in this state, its registered office) is located. If the corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in A-5 <PAGE> 1344 this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters (whether or not residents of this state) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings. (e) Each dissenter made a party to the proceeding is entitled to judgment (1) for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation, or (2) for the fair value, plus accrued interest, of his after-acquired shares for which the corporation elected to withhold payment under Section 79-4-13.27. SEC. 79-4-13.31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under Section 79-4-13.30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously or not in good faith in demanding payment under Section 79-4-13.28. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Sections 79-4-13.20 through 79-4-13.28; or (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by this article. (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1345 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ----------- ----------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement........... $28,604,139 $1,555,411 $ 2,382,465 $ 3,026,104 $11,274,532 Adjustments to eliminate less than wholly-owned subsidiaries........... -- -- -- -- -- ----------- ---------- ----------- ----------- ----------- Adjusted Shareholders' Statement...... $28,604,139 1,555,411 2,382,465 3,026,104 11,274,532 =========== ---------- ----------- ----------- ----------- Adjustments for non-operating items: Gain/loss on disposal of PP&E....... (925,021) (1,288,053) (1,288,053) Gain/loss on sale of securities..... -- -- -- Impairment loss..................... -- -- -- Equity in earnings of unconsolidated subsidiaries...................... -- -- -- Gain/loss on discontinued operations........................ -- -- -- Adjustment to tax expense........... -- -- -- ---------- ----------- ----------- Total non-operating items............. (925,021) (1,288,053) (1,288,053) ---------- ----------- ----------- Other Adjustments: Adjustment for dividends received from other Belk entities.......... -- -- -- -- Adjustment for ownership in other Belk entities..................... -- -- -- (6,670) ---------- ----------- ----------- ----------- Per Model............................. $ 630,390 $ 1,094,412 $ 1,738,051 $11,267,862 ========== =========== =========== =========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents........... $ (371,302) Negative cash balances reclassified to accounts payable........................ 19,773 Receivables from affiliates, net............................ (1,839,609) Loans receivable from affiliates, net............................ (7,367) Liabilities Notes payable..................... -- Current installments of long-term debt........................... -- Current portion of obligations under capital leases........... -- Payables to affiliates, net....... -- Long-term debt, excluding current installments................... -- Obligations under capital leases, excluding current portion...... -- Loans payable to affiliates, net............................ -- ----------- Net debt (cash)....................... (2,198,505) Adjustments to eliminate less than wholly-owned subsidiaries........... -- ----------- Per Model............................. $(2,198,505) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1346 SUPPLEMENT NO. 31 <PAGE> 1347 BELK OF MISS., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 31 <PAGE> 1348 BELK DEPARTMENT STORE OF AHOSKIE, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Department Store of Ahoskie, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 52.4278 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 131,384 shares of New Belk Class A Common Stock which will represent approximately 0.2190% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1349 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1350 BELK DEPARTMENT STORE OF AHOSKIE, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK DEPARTMENT STORE OF AHOSKIE, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Department Store of Ahoskie, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 52.4278 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1351 BELK DEPARTMENT STORE OF AHOSKIE, N.C., INC. SUPPLEMENT NO. 32 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 32 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK DEPARTMENT STORE OF AHOSKIE, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 1352 THE COMPANY The Company was incorporated as a North Carolina corporation in 1937. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 52.4278 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1353 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see " -- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 4,300 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 1354 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 1355 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them 5 <PAGE> 1356 adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without 6 <PAGE> 1357 prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more 7 <PAGE> 1358 than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 1359 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official 9 <PAGE> 1360 capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which 10 <PAGE> 1361 results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a 11 <PAGE> 1362 preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. 12 <PAGE> 1363 After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is 13 <PAGE> 1364 made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period")multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on the November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1365 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- --------------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $4,061,253 $4,061,253 0.6 $ (808,224) $3,244,976 EBITDA............... 142,699 142,699 7 (808,224) 1,807,117 EBIT................. 16,447 16,447 10 (808,224) 972,694 Net Income........... 39,365 39,365 15 -- 590,475 Book Equity.......... 2,958,875 2,793,648 1 -- 2,793,648 </TABLE> 15 <PAGE> 1366 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk Department Store of Clinton, N.C., Inc. 3.5403% X $11,043,990 = $ 390,990 Belk of Jacksonville, N.C., Inc. .5453% X 29,859,953 = 162,826 ---------- Total $ 553,817 ========== Relative Operating Value of Company $3,244,977 Relative Operating Value of Other Companies Owned by Company + 553,817 ---------- Total Relative Value of Company = $3,798,793 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 23.6576% X $3,798,793 = $ 898,703 Belk Enterprises, Inc. 9.7289% X 3,798,793 = 369,581 ---------- Total $1,268,284 ========== Total Relative Value of Company $3,798,793 Total Relative Value of Company Owned by Other Belk Companies - 1,268,284 ---------- Net Relative Value of Company = $2,530,509 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $2,530,509 / $1,155,623,145 = .2190% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.2190% X 60,000,007) / 2,506 = 52.4278 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1367 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 10.36 Book value per share(2)................................... 786.52 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 49.76 Book value per share...................................... 663.84 </TABLE> - --------------- (1) Based on 3,798.67 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 3,762.00 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1368 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $4,171 $4,163 $4,061 Net income.................................................. 140 22 39 Per common share Net income (loss)(1)...................................... 36.77 5.78 10.36 Dividends................................................. 7.54 7.54 5.05 Book value(2)............................................. 783.06 781.30 786.52 Total assets................................................ 3,366 3,225 3,354 Shareholders' Equity........................................ 2,977 2,971 2,959 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $ 2,851 $ 2,833 Income from operations...................................... 86 96 </TABLE> - --------------- (1) Based on 3,812, 3,802 and 3,798.67 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997, respectively. (2) Based on 3,802, 3,802 and 3,762 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997, respectively. 18 <PAGE> 1369 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Other income (expense), net decreased in fiscal year 1997 compared to fiscal year 1996 due to approximately $100,000 of legal fees and settlement costs incurred regarding an underground fuel storage tank located on property formerly owned by the Company. See further discussion under "Business of the Company." BUSINESS OF THE COMPANY General. The Company operates a retail department store in the Ahoskie Commons Shopping Center in Ahoskie, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Howard group office in Fayetteville, North Carolina. Facilities. The Company leases its store building, which contains approximately 46,000 square feet of floor area. The current term of the lease expires in 2008. The Company believes the facility is adequate for its current needs. Competition. The Company's principal competitor in the market is Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. The Company recently was a party to litigation regarding an underground fuel oil storage tank located on property formerly owned by the Company. The litigation was settled in January, 1997. Under the settlement agreement, the Company agreed to pay approximately $36,000 in exchange for the release of all claims against the Company based on alleged contamination from the underground tank. The Company also agreed to pay for half of any future costs for monitoring, assessment or remediation work required by any state or federal environmental authority. 19 <PAGE> 1370 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)........................................ 2,644 70.3% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(c)(e)(f).............................................. 2,124 56.5% H. W. McKay Belk (Director and Executive Officer) (b)(c)(e)(f).............................................. 2,128 56.6% John R. Belk (Director and Executive Officer) (b)(c)(e)(f).............................................. 2,124 56.5% Henderson Belk (Director) (d)............................... 4 * Sarah Belk Gambrell (Director) (d).......................... 394 10.5% Troy M. Howard (Director and Executive Officer)............. 0 * Katherine McKay Belk (b)(c)................................. 832 22.1% Katherine Belk Morris (b)(c)................................ 872 23.2% Sarah Gambrell Knight....................................... 212 5.6% Leroy Robinson (b)(c)....................................... 768 20.4% William R. Young (Executive Officer)........................ 0 * Belk Enterprises, Inc....................................... 366 9.7% J.V. Properties............................................. 890 23.7% All Directors and Executive Officers as a group (15 persons).................................................. 3,338 88.7% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk, and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Sarah Gambrell Knight -- 810 Colville Road, Charlotte, N.C. 28207; Troy M. Howard and William R. Young -- 4525 Camp Ground Road, Fayetteville, N.C. 28314; Belk Enterprises, Inc. and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 556 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 624 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Includes 144 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (d) Includes 4 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for 20 <PAGE> 1371 Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (e) Includes 366 shares held by Belk Enterprises, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of such corporation, under authority given by the directors of such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (f) Includes 890 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. 21 <PAGE> 1372 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1373 BELK DEPARTMENT STORE AHOSKIE NC INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 47,526 $ 55,144 Accounts receivable, net.................................. 703,509 822,349 Merchandise inventory..................................... 880,899 975,717 Receivable from affiliates, net........................... 138,851 248,860 Refundable income taxes................................... 27,805 -- Deferred income taxes..................................... 13,949 32,188 Other..................................................... 48,985 46,022 ---------- ---------- Total current assets........................................ 1,861,524 2,180,280 Loans receivable from affiliates, net....................... 754,221 504,221 Investments................................................. 527 165,227 Property, plant and equipment, net.......................... 584,996 470,305 Deferred income taxes....................................... -- 12,891 Other noncurrent assets..................................... 23,772 20,687 ---------- ---------- $3,225,040 $3,353,611 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 226,265 $ 314,999 Accrued income taxes...................................... -- 52,424 ---------- ---------- Total current liabilities................................... 226,265 367,423 Deferred income taxes....................................... 6,076 -- Other noncurrent liabilities................................ 22,179 27,314 ---------- ---------- Total liabilities........................................... 254,520 394,737 Shareholders' equity: Common stock.............................................. 380,200 376,200 Retained earnings......................................... 2,590,320 2,582,674 ---------- ---------- Total shareholders' equity.................................. 2,970,520 2,958,874 ---------- ---------- $3,225,040 $3,353,611 ========== ========== </TABLE> F-2 <PAGE> 1374 BELK DEPARTMENT STORE AHOSKIE NC INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $4,171,448 $4,163,455 $4,061,252 Operating costs and expenses............................... 4,002,592 4,143,288 3,900,207 ---------- ---------- ---------- Income from operations..................................... 168,856 20,167 161,045 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 24,250 44,562 42,786 Gain (loss) on disposal of property, plant and equipment............................................. -- 3,700 -- Miscellaneous, net....................................... (13,689) (39,706) (144,599) ---------- ---------- ---------- Total other expense, net................................... 10,561 8,556 (101,813) ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 179,417 28,723 59,232 Income tax expense (benefit)............................... 39,254 6,733 19,868 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 140,163 21,990 39,364 Net earnings............................................... 140,163 21,990 39,364 Retained earnings at beginning of period................... 2,498,423 2,596,997 2,590,320 Dividends paid............................................. (28,665) (28,667) (19,010) Purchase of treasury stock................................. (12,924) -- (28,000) ---------- ---------- ---------- Retained earnings at end of period......................... $2,596,997 $2,590,320 $2,582,674 ========== ========== ========== </TABLE> F-3 <PAGE> 1375 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1376 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1377 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 1378 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1379 SEC.SEC. 55-13-04 TO 55-13-19. Reserved for future codification purposes. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1380 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1381 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1382 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1383 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- ------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $4,061,253 $39,365 $16,447 $142,699 $2,958,875 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- ------- ------- -------- ---------- Adjusted Shareholders' Statement............... $4,061,253 39,365 16,447 142,699 2,958,875 ========== ------- ------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ -- -- -- Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- ------- ------- -------- Total non-operating items...................... -- -- -- ------- ------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (165,227) ------- ------- -------- ---------- Per Model...................................... $39,365 $16,447 $142,699 $2,793,648 ======= ======= ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (55,143) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... (248,860) Loans receivable from affiliates, net...... (504,221) Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ -- Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ (808,224) Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ (808,224) ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1384 SUPPLEMENT NO. 32 <PAGE> 1385 BELK DEPARTMENT STORE AHOSKIE, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 32 <PAGE> 1386 BELK'S DEPARTMENT STORE OF ALBEMARLE, NORTH CAROLINA, INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk's Department Store of Albemarle, North Carolina, Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 37.9201 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 82,628 shares of New Belk Class A Common Stock which will represent approximately 0.1377% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1387 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1388 BELK'S DEPARTMENT STORE OF ALBEMARLE, NORTH CAROLINA, INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK'S DEPARTMENT STORE OF ALBEMARLE, NORTH CAROLINA, INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk's Department Store of Albemarle, North Carolina, Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 37.9201 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1389 BELK'S DEPARTMENT STORE OF ALBEMARLE, NORTH CAROLINA, INCORPORATED SUPPLEMENT NO. 33 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 33 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK'S DEPARTMENT STORE OF ALBEMARLE, NORTH CAROLINA, INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/ PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> \ <PAGE> 1390 THE COMPANY The Company was incorporated as a North Carolina corporation in 1917. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 37.9201 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1391 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 9,096 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 1392 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 1393 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them 5 <PAGE> 1394 adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. 6 <PAGE> 1395 Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable 7 <PAGE> 1396 range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares 8 <PAGE> 1397 entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. 9 <PAGE> 1398 Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 1399 circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 1400 The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization 12 <PAGE> 1401 Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine 13 <PAGE> 1402 the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on the November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1403 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $4,837,723 $4,837,723 0.6 $ (419,017) $3,321,651 EBITDA............... 295,887 295,887 7 (419,017) 2,490,226 EBIT................. 200,413 200,413 10 (419,017) 2,423,147 Net Income........... 137,013 127,833 15 -- 1,917,495 Book Equity.......... 2,369,063 2,368,611 1 -- 2,368,611 </TABLE> 15 <PAGE> 1404 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $N/A = $ N/A ---------- Total N/A ========== Relative Operating Value of Company $3,321,651 Relative Operating Value of Other Companies Owned by Company + -- ---------- Total Relative Value of Company = $3,321,651 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 43.4697% X $3,321,651 = $1,443,912 Belk Enterprises, Inc. 3.8698 X 3,321,651 = 128,541 Belk-Beck Company of Burlington, North Carolina, Inc. 4.7493 X 3,321,651 = 157,755 ---------- Total $1,730,208 ========== Total Relative Value of Company $3,321,651 Total Relative Value of Company Owned by Other Belk Companies - 1,730,208 ---------- Net Relative Value of Company = $1,591,443 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $1,591,443 / $1,155,623,145 = .1377% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.1377% X 60,000,007) / 2,179 = 37.9201 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1405 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 30.13 Book value per share(2)................................... 520.90 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 35.99 Book value per share...................................... 480.14 </TABLE> - --------------- (1) Based on 4,548 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 4,548 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1406 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $5,180 $4,848 $4,838 Net income.................................................. 139 90 137 Per common share Net income (loss)(1)...................................... 30.48 19.72 30.13 Dividends................................................. 7.50 10.00 10.00 Book value(2)............................................. 491.06 500.78 520.90 Total assets................................................ 3,244 3,145 3,216 Shareholders' equity........................................ 2,233 2,278 2,369 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $3,316 $3,225 Income from operations...................................... 34 138 </TABLE> - --------------- (1) Based on 4,548 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 4,548 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1407 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Albemarle Mall in Albemarle, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Pennell group office in Charlotte, North Carolina. Facilities. The Company leases its store building, which contains approximately 65,000 square feet of floor area. The current term of the lease expires in 2000. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Penney and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1408 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 2,895 63.7% Thomas M. Belk, Jr. (Director and Executive Officer)(a)(c)(d)(e)...................................... 2,462 54.1% H. W. McKay Belk (Director and Executive Officer) (a)(c)(d)................................................. 2,452 53.9% John R. Belk (Director and Executive Officer) (a)(c)(d)(f).............................................. 2,492 54.8% Henderson Belk (Director) (b)............................... 320 7.0% Sarah Belk Gambrell (Director) (b).......................... 469 10.3% David Belk Cannon (Director) (h)............................ 224 4.9% James K. Glenn, Jr. (Director) (g).......................... 89 2.0% Daisy D. Lange (Director) (i)............................... 116 2.6% Leroy Robinson (Director) (a)............................... 63 1.4% John H. Pennell (Executive Officer)......................... 0 * Thomas M. Belk, Trustee U/A dated September 15, 1993........ 63 1.4% NationsBank, N.A. (i)(j).................................... 328 7.2% J.V. Properties............................................. 1,977 43.5% All Directors and Executive Officers as a group (11 persons).................................................. 3,191 70.2% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business or mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr., P.O. Box 2736, Winston-Salem, N.C. 27102; Daisy D. Lange, 7 Brickwall Lane, Ruislip, Middlesex, England HA48JS; John H. Pennell -- 308 East Fifth Street, Charlotte, N.C. 28202; J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 63 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 320 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 20 <PAGE> 1409 (c) Includes 176 shares held by Bel Enterprises, Inc. and 216 shares held by Belk-Beck Company of Burlington, North Carolina, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of such corporation, under authority given by the directors of such corporation at the annual meeting of directors held in March, 1997. The Executive Committee consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Includes 1,977 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (e) Includes 10 shares held by Thomas M. Belk, Jr. as custodian for his minor children. (f) Includes 10 shares held by John R. Belk as custodian for his minor children. (g) Includes 16 shares held by James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox, 22 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al., and 39 shares held by John Belk Stevens Trust U/W ITEM III, Section B, f/b/o Mary S. Whelchel. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (h) Includes 78 shares held by Residuary Trust U/W Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (i) Includes 96 shares held by Daisy Doughton Lange and North Carolina National Bank, Trustees for Robert L. Doughton II under Agreement dated July 21, 1965. The two Trustees named have voting and investment power with respect to such shares. (j) Includes 20 shares held by NationsBank as Trustee for Daisy Belk Doughton Lange Revocable Trust dtd 3/25/97, 96 shares held by Sara Dew Misner and North Carolina National Bank, Co-Trustees for Daisy Doughton Lange U/A dated November 5, 1965 and 116 shares held by J.L. Green, Jr. and North Carolina National Bank, Trustees U/A 7/9/65 -- Sadie Belk Cummings, Grantor. NationsBank has sole voting and investing power with respect to such shares. 21 <PAGE> 1410 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1411 BELK'S DEPARTMENT STORE OF ALBEMARLE, NORTH CAROLINA, INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 275,982 $ 106,747 Accounts receivable, net.................................. 702,050 803,164 Merchandise inventory..................................... 1,073,046 1,068,130 Receivable from affiliates, net........................... 550,513 735,468 Deferred income taxes..................................... 26,689 18,220 Other..................................................... 56,077 51,941 ---------- ---------- Total current assets........................................ 2,684,357 2,783,670 Investments................................................. 452 452 Property, plant and equipment, net.......................... 85,263 106,810 Buildings under capital lease, net.......................... 275,091 212,806 Deferred income taxes....................................... 75,453 74,713 Other noncurrent assets..................................... 24,579 37,438 ---------- ---------- $3,145,195 $3,215,889 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of obligations under capital leases....... $ 100,964 $ 110,572 Accounts payable and accrued expenses..................... 273,146 315,197 Accrued income taxes...................................... 32,767 39,354 ---------- ---------- Total current liabilities................................... 406,877 465,123 Obligations under capital leases, excluding current portion................................................... 423,197 312,625 Other noncurrent liabilities................................ 37,591 69,078 ---------- ---------- Total liabilities........................................... 867,665 846,826 Shareholders' equity: Common stock.............................................. 454,800 454,800 Retained earnings......................................... 1,822,730 1,914,263 ---------- ---------- Total shareholders' equity.................................. 2,277,530 2,369,063 ---------- ---------- $3,145,195 $3,215,889 ========== ========== </TABLE> F-2 <PAGE> 1412 BELK'S DEPARTMENT STORE OF ALBEMARLE, NORTH CAROLINA, INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $5,180,253 $4,848,133 $4,837,721 Operating costs and expenses............................... 4,913,070 4,684,642 4,627,289 ---------- ---------- ---------- Income from operations..................................... 267,183 163,491 210,432 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (48,233) (25,771) (23,962) Miscellaneous, net....................................... (20,062) 12,544 (10,019) ---------- ---------- ---------- Total other expense, net................................... (68,295) (13,227) (33,981) ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 198,888 150,264 176,451 Income tax expense (benefit)............................... 60,274 60,591 39,438 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 138,614 89,673 137,013 ---------- ---------- ---------- Net earnings............................................... 138,614 89,673 137,013 Retained earnings at beginning of period................... 1,674,033 1,778,537 1,822,730 Dividends paid............................................. (34,110) (45,480) (45,480) ---------- ---------- ---------- Retained earnings at end of period......................... $1,778,537 $1,822,730 $1,914,263 ========== ========== ========== </TABLE> F-3 <PAGE> 1413 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholder equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1414 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1415 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 1416 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1417 SEC.SEC. 55-13-04 TO 55-13-19. Reserved for future codification purposes. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1418 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1419 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1420 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1421 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $4,837,723 $137,013 $200,413 $295,887 $2,369,063 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- -------- ---------- Adjusted Shareholders' Statement............... $4,837,723 137,013 200,413 295,887 2,369,063 ========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ -- -- -- Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... (9,180) -- -- -- -------- -------- -------- Total non-operating items...................... (9,180) -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (452) -------- -------- -------- ---------- Per Model...................................... $127,833 $200,413 $295,887 $2,368,611 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (106,746) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... (735,468) Loans receivable from affiliates, net...... -- Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... 110,572 Payables to affiliates, net................ -- Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... 312,625 Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ (419,017) Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ (419,017) ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1422 SUPPLEMENT NO. 33 <PAGE> 1423 BELK'S DEPARTMENT STORE OF ALBEMARLE, N.C., INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 33 <PAGE> 1424 BELK OF ASHEBORO, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk of Asheboro, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 112.9932 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 392,086 shares of New Belk Class A Common Stock which will represent approximately 0.6535% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 1425 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1426 BELK OF ASHEBORO, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK OF ASHEBORO, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk of Asheboro, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 112.9932 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1427 BELK OF ASHEBORO, N.C., INC. SUPPLEMENT NO. 34 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 34 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK OF ASHEBORO, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS................................................ F-1 Unaudited Consolidated Balance Sheets..................... F-2 Unaudited Consolidated Statements of Earnings and Retained Earnings............................................... F-3 Condensed Notes to Unaudited Consolidated Historical Financial Statements................................... F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 1428 THE COMPANY The Company was incorporated as a North Carolina corporation in 1930 as Hudson-Belk Company of Asheboro, North Carolina Incorporated. The Company changed its name to Belk of Asheboro, N.C., Inc. on June 13, 1997. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 112.9932 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 1429 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 5,640 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one 3 <PAGE> 1430 vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. 4 <PAGE> 1431 Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the 5 <PAGE> 1432 shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. 6 <PAGE> 1433 Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable 7 <PAGE> 1434 range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares 8 <PAGE> 1435 entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. 9 <PAGE> 1436 Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 1437 circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation that within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 1438 The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization 12 <PAGE> 1439 Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine 13 <PAGE> 1440 the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period")multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1441 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $11,724,897 $10,113,599 0.6 $ (441,111) $ 6,509,270 EBITDA............... 1,411,802 1,181,054 7 (441,111) 8,708,489 EBIT................. 1,222,294 1,011,164 10 (441,111) 10,552,751 Net Income........... 464,083 612,409 15 -- 9,186,135 Book Equity.......... 3,872,747 3,993,380 1 -- 3,993,380 </TABLE> 15 <PAGE> 1442 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk of Siler City, N.C., Inc. 52.5439% X $107,854 = $ 56,670 ----------- Total $ 56,670 =========== Relative Operating Value of Company $10,552,751 Relative Operating Value of Other Companies Owned by Company + 56,670 ----------- Total Relative Value of Company = $10,609,421 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. 9.6% X $10,609,421 = $ 1,018,504 Belk Finance Company .8615% X 10,609,421 = 91,400 Belk Department Store of Greenville, N.C., Inc. 18.359% X 10,609,421 = 1,947,784 ----------- Total $ 3,057,688 =========== Total Relative Value of Company $10,609,421 Total Relative Value of Company Owned by Other Belk Companies - 3,057,688 ----------- Net Relative Value of Company = $ 7,551,733 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $7,551,733 / $1,155,623,145 = .6535% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.6535% X 60,000,007) / 3,470 = 112.9932 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1443 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 95.20 Book value per share(2)................................... 794.41 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 107.25 Book value per share...................................... 1,430.71 </TABLE> - --------------- (1) Based on 4,875 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 4,875 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1444 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $10,755 $11,021 $11,725 Net income.................................................. 334 322 464 Per common share Net income (loss)(1)...................................... 68.50 66.03 95.20 Dividends................................................. 17.35 22.48 20.00 Book value(2)............................................. 788.39 729.52 794.41 Total assets................................................ 6,141 5,307 5,457 Shareholders' equity........................................ 3,843 3,556 3,873 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $7,944 $8,380 Income from operations...................................... 374 815 </TABLE> - --------------- (1) Based on 4,875 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 4,875 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1445 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Randolph Mall in Asheboro, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Huffstetler group office in Greensboro, North Carolina. Facilities. The Company owns the store property and building, which contains approximately 74,000 square feet of floor area, together with an adjacent parking area. The Company believes the facility is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Sears and Penney. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1446 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 1,957 40.1% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(d).................................................... 1,607 33.0% H. W. McKay Belk (Director and Executive Officer) (b)(d).... 1,604 32.9% John R. Belk (Director and Executive Officer) (b)(d)........ 1,604 32.9% Henderson Belk (Director) (c)............................... 6 * Sarah Belk Gambrell (Director) (c).......................... 358 7.3% Leroy Robinson (Director) (b)............................... 97 2.0% Karl G. Hudson, Jr. (Director).............................. 8 * Karl G. Hudson, III (Director).............................. 109 2.2% F. O. Yates, Jr. (Director)................................. 0 * Sarah Gambrell Knight....................................... 542 11.1% Virginia Hudson Beaman (e).................................. 500 5.1% Pete Huffstetler (Executive Officer)........................ 0 * Gordon J. Tendler (Executive Officer)....................... 0 * Darrell Murphy (Executive Officer).......................... 0 * W. J. Hudson, III (estate).................................. 250 5.1% All Directors and Executive Officers as a group (11 persons).................................................. 2,985 55.2% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Sarah Gambrell Knight -- 810 Colville Road, Charlotte, N.C. 28207; Virginia Hudson Beaman -- 2412 Lake Drive, Raleigh, N.C. 27609; Karl G. Hudson, Jr. -- 2416 White Oak Road, Raleigh, N.C. 27609; Hudson-Belk Group Office, Karl G. Hudson, III -- 319 Fayetteville Street, Raleigh, N.C. 27601; F. O. Yates, Jr. -- 628 South Park Street, Asheboro, N.C. 27203; Pete Huffstetler, Darrell Murphy and Gordon J. Tendler -- 1-104 Carolina Circle Mall, Greensboro, N.C. 27405. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 240 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 97 shares held by Milburn Investment Company, of which the Estate of Thomas M. Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas M. Belk, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 6 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by 20 <PAGE> 1447 John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 468 shares held by Belk Enterprises, Inc., 42 shares held by Belk Finance Company, and 895 shares held by Belk Department Store of Greenville, N.C., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (e) Included are 250 shares held by the estate of W. J. Hudson, III. The executor, Virginia Hudson Beaman has the voting and investment power with respect to such shares. 21 <PAGE> 1448 INDEX TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Consolidated Balance Sheets....................... F-2 Unaudited Consolidated Statements of Earnings and Retained Earnings.................................................. F-3 Condensed Notes to Unaudited Consolidated Historical Financial Statements...................................... F-4 </TABLE> F-1 <PAGE> 1449 BELK OF ASHEBORO, N.C., INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 81,915 $ 155,130 Accounts receivable, net.................................. 1,839,640 2,164,372 Merchandise inventory..................................... 1,970,161 2,123,347 Deferred income taxes..................................... 55,172 114,012 Other..................................................... 89,151 83,926 ---------- ---------- Total current assets........................................ 4,036,039 4,640,787 Loans receivable from affiliates, net....................... 21,345 21,345 Investments................................................. 1,306 1,306 Property, plant and equipment, net.......................... 1,084,035 731,958 Deferred income taxes....................................... 96,804 -- Other noncurrent assets..................................... 67,795 61,396 ---------- ---------- $5,307,324 $5,456,792 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt.................... $ 214,644 $ 214,641 Accounts payable and accrued expenses..................... 628,226 782,316 Payables to affiliates, net............................... 518,199 379,650 Accrued income taxes...................................... 65,593 137,658 ---------- ---------- Total current liabilities................................... 1,426,662 1,514,265 Deferred income taxes....................................... -- 61,023 Long-term debt, excluding current installments.............. 214,665 -- Other noncurrent liabilities................................ 109,565 120,901 ---------- ---------- Total liabilities........................................... 1,750,892 1,696,189 Minority interest........................................... -- (112,144) Shareholders' equity: Common stock.............................................. 560,900 487,500 Retained earnings......................................... 2,995,532 3,385,247 ---------- ---------- Total shareholders' equity.................................. 3,556,432 3,872,747 ---------- ---------- $5,307,324 $5,456,792 ========== ========== </TABLE> F-2 <PAGE> 1450 BELK OF ASHEBORO, N.C., INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales............................................... $10,754,805 $11,021,421 $11,724,897 Operating costs and expenses............................ 9,990,863 10,403,295 10,649,230 Impairment loss......................................... -- -- 168,159 ----------- ----------- ----------- Income from operations.................................. 763,942 618,126 907,508 ----------- ----------- ----------- Other income (expense): Interest, net......................................... (92,701) (104,674) (72,255) Gain (loss) on disposal of property, plant and equipment.......................................... (27,329) 1,976 28 Miscellaneous, net.................................... 17,821 (22,591) (22,623) ----------- ----------- ----------- Total other expense, net................................ (102,209) (125,289) (94,850) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 661,733 492,837 812,658 Income tax expense (benefit)............................ 327,819 170,943 484,720 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 333,914 321,894 327,938 Minority interest in (earnings) loss of unconsolidated subsidiaries.......................................... -- -- (136,146) ----------- ----------- ----------- Net earnings............................................ 333,914 321,894 464,084 Retained earnings at beginning of period................ 3,017,022 3,206,992 2,995,532 Dividends paid.......................................... (84,600) (109,600) (97,500) Retained earnings adjustments........................... -- -- 23,131 Retirement of common stock.............................. (59,344) (423,754) -- ----------- ----------- ----------- Retained earnings at end of period...................... $ 3,206,992 $ 2,995,532 $ 3,385,247 =========== =========== =========== </TABLE> F-3 <PAGE> 1451 CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996, AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1452 CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1453 CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (12) RETAINED EARNINGS ADJUSTMENT At February 1, 1997, Asheboro owned approximately 53% of Belk-Yates Company of Siler City, North Carolina, Incorporated (Siler City). The accompanying February 1, 1997 financial statement presents the balance sheet and statement of income of Asheboro and Siler City as a consolidated entity, with all intercompany transactions eliminated in consolidation. At February 3, 1996, the Company accounted for its investment in Siler City on the equity method; however, the balance sheet and statement of income for the years ended February 3, 1996 and January 31, 1995 are presented as a combination of the Company and Siler City, and are presented for comparative purposes only. F-6 <PAGE> 1454 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 1455 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1456 SEC.SEC. 55-13-04 TO 55-13-19. Reserved for future codification purposes. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1457 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1458 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1459 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1460 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ---------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement............. $11,724,897 $464,083 $1,222,294 $1,411,802 $3,872,747 Adjustments to eliminate less than wholly-owned subsidiaries............. (1,611,298) 148,326 (211,130) (230,748) 166,030 ----------- -------- ---------- ---------- ---------- Adjusted Shareholders' Statement........ $10,113,599 612,409 1,011,164 1,181,054 4,038,777 =========== -------- ---------- ---------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E......... -- -- -- Gain/loss on sale of securities....... -- -- -- Impairment loss....................... -- -- -- Equity in earnings of unconsolidated subsidiaries........................ -- -- -- Gain/loss on discontinued operations.......................... -- -- -- Adjustment to tax expense............. -- -- -- -- -------- ---------- ---------- Total non-operating items............... -- -- -- -------- ---------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities................. -- -- -- Adjustment for ownership in other Belk entities............................ (45,397) -------- ---------- ---------- ---------- Per Model............................... $612,409 $1,011,164 $1,181,054 $3,993,380 ======== ========== ========== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents............. $ (155,131) Negative cash balances reclassified to accounts payable.............. -- Receivables from affiliates, net.... -- Loans receivable from affiliates, net.............................. (21,345) Liabilities Notes payable....................... -- Current installments of long-term debt............................. 214,641 Current portion of obligations under capital leases................... -- Payables to affiliates, net......... 379,650 Long-term debt, excluding current installments..................... -- Obligations under capital leases, excluding current portion........ -- Loans payable to affiliates, net.... -- ----------- Net debt (cash)......................... 417,815 Adjustments to eliminate less than wholly-owned subsidiaries............. (858,926) ----------- Per Model............................... $ (441,111) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1461 SUPPLEMENT NO. 34 <PAGE> 1462 BELK OF ASHEBORO, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 34 <PAGE> 1463 BELK'S DEPARTMENT STORE OF ASHEVILLE, NORTH CAROLINA, INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk's Department Store of Asheville, North Carolina, Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 19.5822 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 230,197 shares of New Belk Class A Common Stock which will represent approximately 0.3837% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1464 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1465 BELK'S DEPARTMENT STORE OF ASHEVILLE, NORTH CAROLINA, INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK'S DEPARTMENT STORE OF ASHEVILLE, NORTH CAROLINA, INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk's Department Store of Asheville, North Carolina, Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 19.5822 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1466 BELK'S DEPARTMENT STORE OF ASHEVILLE, NORTH CAROLINA, INCORPORATED SUPPLEMENT NO. 35 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 35 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK'S DEPARTMENT STORE OF ASHEVILLE, NORTH CAROLINA, INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/ PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 21 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 1467 THE COMPANY The Company was incorporated as a North Carolina corporation in 1931. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 19.5822 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1468 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 22,200 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A 3 <PAGE> 1469 Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than 4 <PAGE> 1470 the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. 5 <PAGE> 1471 Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be 6 <PAGE> 1472 filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall 7 <PAGE> 1473 otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 1474 Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly 9 <PAGE> 1475 in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, 10 <PAGE> 1476 guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. 11 <PAGE> 1477 Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates 12 <PAGE> 1478 must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. 13 <PAGE> 1479 A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on the November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1480 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $23,249,957 $23,249,957 0.6 $8,220,993 $ 5,728,981 EBITDA............... 1,328,137 1,140,887 7 8,220,993 (234,784) EBIT................. 719,122 531,873 10 8,220,993 (2,902,263) Net Income (Loss).... 12,251 (105,075) 15 -- (1,576,125) Book Equity.......... 4,116,784 3,971,571 1 -- 3,971,571 </TABLE> 15 <PAGE> 1481 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. .2086% X $357,823,093 = $ 746,419 Belk Department Store of Clinton, N.C., Inc. 1.2575 X 11,043,990 = 138,878 Belk Department Store of Greenville, N.C., Inc. 1.2179 X 25,446,468 = 309,913 Belk Department Store of Hickory, N.C., Inc. 1.5499 X 26,225,818 = 406,474 Belk's Department Store of Morehead City, N.C., Inc. 5.2703 X 10,315,587 = 543,662 Belk's Department Store of New Bern, N.C., Incorporated 1.7221 X 7,893,721 = 135,938 Belk Department Store of Waynesville, N.C., Inc. 1.2369 X 6,879,640 = 85,094 ---------- Total $2,366,378 ========== Relative Operating Value of Company $5,728,981 Relative Operating Value of Other Companies Owned by Company + 2,366,378 ---------- Total Relative Value of Company = $8,095,359 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 11.9829% X $8,095,359 = $ 970,059 Belk Enterprises, Inc. 18.2564 X 8,095,359 = 1,477,921 Belk Finance Company 1.8822 X 8,095,359 = 152,371 Belk Department Store of Greenville, N.C., Inc. 11.9502 X 8,095,359 = 967,412 Belk's Department Store of New Bern, N.C., Incorporated .5917 X 8,095,359 = 47,900 Belk of Spartanburg, S.C., Inc. .5684 X 8,095,359 = 46,014 ---------- Total $3,661,677 ========== Total Relative Value of Company $8,095,359 Total Relative Value of Company Owned by Other Belk Companies - 3,661,677 ---------- Net Relative Value of Company = $4,433,682 ========== </TABLE> 16 <PAGE> 1482 The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 4,433,682 / $1,155,623,145 = .3837% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.3837% X 60,000,007) / 11,755.43750 = 19.5822 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 1483 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 0.57 Book value per share(2)................................... 191.80 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 18.59 Book value per share...................................... 247.95 </TABLE> - --------------- (1) Based on 21,464 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 21,464 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 1484 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $23,020 $22,457 $23,250 Net income (loss)........................................... (73) (729) 12 Per common share Net income (loss)(1)...................................... (3.41) (33.95) 0.57 Dividends................................................. -- -- -- Book value(2)............................................. 225.18 119.23 191.80 Total assets................................................ 15,290 14,898 15,182 Shareholders' equity........................................ 4,833 4,105 4,117 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $15,289 $15,576 Income from operations...................................... 23 575 </TABLE> - --------------- (1) Based on 21,464 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 21,464 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 19 <PAGE> 1485 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. During fiscal year 1996, income from operations decreased due to a decline in sales with no corresponding decline in expenses and due to increased markdowns. In May of fiscal year 1997 the Company closed an underperforming store in Asheville, North Carolina. Based on projected operating results, the Company would be unable to make all scheduled loan payments without additional borrowing from related entities or renegotiating the term repayment schedule. BUSINESS OF THE COMPANY General. The Company operates three retail department stores in the following locations in North Carolina: Biltmore Square and Asheville Mall in Asheville and downtown Sylva. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/ Prospectus. The stores are managed out of the Kuhne/Greiner group office in Greenville, South Carolina. Facilities. The Company operates three stores, of which two are leased under long-term leases (one of which was built by the Company on a ground leased site at Asheville Mall) and one is owned by the Company. The store leases have termination dates of 2001 and 2011. The floor area of the leased building at Biltmore Square is 82,000 square feet and the building built by the Company at Asheville Mall contains 114,000 square feet. The Sylva store, which is owned by the Company, contains 15,000 square feet of floor area. The Company believes these facilities are adequate to meet its current needs. Competition. Specific competitors in the Company's market include Proffitt's, Dillard, Sears, Penney, Goody's and Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 20 <PAGE> 1486 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Director) (a)(b)(c)(d)(e)(f)........................................ 12,558.8750 58.5% Thomas M. Belk, Jr. (Director and Executive Director) (a)(c)(e)(f)(g)........................................... 10,568.8750 49.2% H. W. McKay Belk (Director and Executive Director) (a)(c)(e)(f)(h)........................................... 10,568.8750 49.2% John R. Belk (Director and Executive Director) (a)(c)(e)(f)(i)........................................... 10,586.8750 49.3% Henderson Belk (Director) (d)............................... 182.0000 * Sarah Belk Gambrell (Director) (d).......................... 3,485.0000 16.2% Sarah Gambrell Knight....................................... 1,766.3125 8.2% John A. Kuhne (Executive Officer)........................... 0 * Robert E. Greiner (Executive Officer)....................... 0 * Belk Enterprises, Inc....................................... 3,918.5625 18.2% J. V. Properties............................................ 2,572.0000 11.9% Belk Department Stores of Greenville, N.C., Inc............. 2,565.0000 12.0% All Directors and Executive Officers as a group (12 persons).................................................. 18,055.5625 84.1% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Henderson Belk -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Sarah Gambrell Knight -- 810 Colville Road, Charlotte, N.C. 28207; John A. Kuhne and Robert E. Greiner -- 14 S. Main Street, Greenville, S.C. 29601; Belk Enterprises, Inc., J.V. Properties and Belk Department Store of Greenville, N.C., Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of common stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 36 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (b) Represented by .3125 shares held by Claudia W. Belk, Tr. U/A f/b/o Mary Claudia Belk. Claudia W. Belk is John M. Belk's wife. (c) Includes 470 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (d) Includes 182 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 21 <PAGE> 1487 (e) Includes 3918.5625 shares held by Belk Enterprises, Inc., 404 shares held by Belk Finance Company, 2,565 shares held by Belk Department Store of Greenville, N.C., Inc., 127 shares held by Belk's Department Store of New Bern, N.C., Incorporated and 122 shares held by Belk of Spartanburg, S.C., Inc. which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporations consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (f) Includes 2,572 shares held by J. V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (g) Includes 12 shares held by Thomas M. Belk, Jr., as custodian for his minor children. (g) Includes 18 shares held by H. W. McKay Belk as custodian for his minor children. (h) Includes 6 shares held by John R. Belk as custodian for his minor children. 22 <PAGE> 1488 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 </TABLE> F-1 <PAGE> 1489 BELK'S DEPARTMENT STORE OF ASHEVILLE, NORTH CAROLINA, INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 211,013 $ 217,417 Accounts receivable, net.................................. 3,404,436 4,033,243 Merchandise inventory..................................... 4,806,547 4,781,161 Receivable from affiliates, net........................... -- 160,107 Refundable income taxes................................... 3,329 1,572 Deferred income taxes..................................... 88,650 111,538 Other..................................................... 259,899 446,265 ----------- ----------- Total current assets........................................ 8,773,874 9,751,303 Investments................................................. 147,213 147,213 Property, plant and equipment, net.......................... 5,017,226 4,390,674 Deferred income taxes....................................... 837,619 766,484 Other noncurrent assets..................................... 122,280 125,918 ----------- ----------- $14,898,212 $15,181,592 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable............................................. $ 1,560,000 $ 5,070,000 Current installments of long-term debt.................... 885,000 475,000 Accounts payable and accrued expenses..................... 1,454,253 1,185,201 Payables to affiliates, net............................... 646,817 -- ----------- ----------- Total current liabilities................................... 4,546,070 6,730,201 Long-term debt, excluding current installments.............. 4,902,500 2,137,500 Loans payable to affiliates, net............................ 10,600 916,017 Other noncurrent liabilities................................ 550,183 566,507 ----------- ----------- Total liabilities........................................... 10,009,353 10,350,225 Deferred income............................................. 784,328 714,583 Shareholders' equity: Common stock.............................................. 2,146,400 2,146,400 Additional paid in capital................................ 45,000 45,000 Retained earnings......................................... 1,913,131 1,925,384 ----------- ----------- Total shareholders' equity.................................. 4,104,531 4,116,784 ----------- ----------- $14,898,212 $15,181,592 =========== =========== </TABLE> F-2 <PAGE> 1490 BELK'S DEPARTMENT STORE OF ASHEVILLE, NORTH CAROLINA, INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $23,587,936 $23,123,232 $23,831,046 Less: Leased Sales...................................... 568,399 666,563 581,088 ----------- ----------- ----------- Net sales............................................... 23,019,537 22,456,669 23,249,958 Operating costs and expenses............................ 22,670,321 22,923,159 22,584,043 ----------- ----------- ----------- Income from operations.................................. 349,216 (466,490) 665,915 ----------- ----------- ----------- Other income (expense): Interest, net......................................... (616,958) (760,539) (657,425) Dividend income....................................... 13,704 16,930 19,043 Gain (loss) on disposal of property, plant and equipment.......................................... 36,045 1,688 168,206 Miscellaneous, net.................................... (9,042) 10,598 (134,041) ----------- ----------- ----------- Total other expense, net................................ (576,251) (731,323) (604,217) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... (227,035) (1,197,813) 61,698 Income tax expense (benefit)............................ (153,914) (469,077) 49,445 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... (73,121) (728,736) 12,253 ----------- ----------- ----------- Net earnings............................................ (73,121) (728,736) 12,253 Retained earnings at beginning of period................ 2,714,988 2,641,867 1,913,131 ----------- ----------- ----------- Retained earnings at end of period...................... $ 2,641,867 $ 1,913,131 $ 1,925,384 =========== =========== =========== </TABLE> F-3 <PAGE> 1491 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1492 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1493 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; A-1 <PAGE> 1494 (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1495 SEC.SEC. 55-13-04 TO 55-13-19. Reserved for future codification purposes. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1496 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1497 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision (a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions (a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1498 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1499 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- --------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................. $23,249,957 $ 12,251 $ 719,122 $1,328,136 $4,116,784 Adjustments to eliminate less than wholly-owned subsidiaries.................. -- -- -- -- -- ----------- --------- --------- ---------- ---------- Adjusted Shareholders' Statement............. $23,249,957 12,251 719,122 1,328,136 4,116,784 =========== --------- --------- ---------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E.............. (140,771) (168,206) (168,206) Gain/loss on sale of securities............ -- -- -- Impairment loss............................ -- -- -- Equity in earnings of unconsolidated subsidiaries............................. -- -- -- Gain/loss on discontinued operations....... -- -- -- Adjustment to tax expense.................. 39,382 -- -- -- --------- --------- ---------- Total non-operating items.................... (101,389) (168,206) (168,206) --------- --------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities...................... (15,937) (19,043) (19,043) Adjustment for ownership in other Belk entities................................. (145,213) --------- --------- ---------- ---------- Per Model.................................... $(105,075) $ 531,873 $1,140,887 $3,971,571 ========= ========= ========== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................. $ (217,417) Negative cash balances reclassified to accounts payable....................... -- Receivables from affiliates, net......... (160,107) Loans receivable from affiliates, net.... -- Liabilities Notes payable............................ 5,070,000 Current installments of long-term debt... 475,000 Current portion of obligations under capital leases......................... -- Payables to affiliates, net.............. -- Long-term debt, excluding current installments........................... 2,137,500 Obligations under capital leases, excluding current portion.............. -- Loans payable to affiliates, net......... 916,017 ----------- Net debt (cash).............................. 8,220,993 Adjustments to eliminate less than wholly-owned subsidiaries.................. -- ----------- Per Model.................................... $ 8,220,993 =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1500 SUPPLEMENT NO. 35 <PAGE> 1501 BELK'S DEPARTMENT STORE OF ASHEVILLE, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 35 <PAGE> 1502 BELK-MATTHEWS COMPANY , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Matthews Company (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 28.0446 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 32,251 shares of New Belk Class A Common Stock which will represent approximately 0.0538% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 1503 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1504 BELK-MATTHEWS COMPANY ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-MATTHEWS COMPANY: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Matthews Company (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 28.0446 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1505 BELK-MATTHEWS COMPANY SUPPLEMENT NO. 36 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 36 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BALK-MATTHEWS COMPANY (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 3 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 1506 THE COMPANY The Company was incorporated as a North Carolina corporation in 1923. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 28.0446 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1507 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to share the risks of the Company's uncertain prospects in its market. The Company's store is located in a market that faces stiff competition from larger towns in the area. The management of the Company is considering whether to recommend the relocation of the Company's store in connection with reviewing its long term prospects in the market. The Merger would enable the Company to rely on New Belk to provide the capital necessary to effect any such relocation. If the Company does not participate in the Reorganization and is required to finance the relocation of its store on its own, there can be no assurance that the Company would be able to obtain the financing necessary to do so. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. 3 <PAGE> 1508 Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 2,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New 4 <PAGE> 1509 Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a 5 <PAGE> 1510 quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a 6 <PAGE> 1511 meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. 7 <PAGE> 1512 The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove 8 <PAGE> 1513 him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct 9 <PAGE> 1514 in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or a share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage 10 <PAGE> 1515 of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the time in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. 11 <PAGE> 1516 With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholder's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. 12 <PAGE> 1517 Any written notice of a Shareholder's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. 13 <PAGE> 1518 A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. 14 <PAGE> 1519 Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- --------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $1,051,809 $1,051,809 0.6 $(202,905) $833,990 EBITDA............... 80,807 80,807 7 (202,905) 768,554 EBIT................. 58,963 58,963 10 (202,905) 792,535 Net Income........... 48,104 48,104 15 -- 721,560 Book Equity.......... 779,093 778,832 1 -- 778,832 </TABLE> 15 <PAGE> 1520 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A -------- Total N/A ======== Relative Operating Value of Company $833,990 Relative Operating Value of Other Companies Owned by Company + -- -------- Total Relative Value of Company = $833,990 ======== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 18.2642% X $833,990 = $152,321 Matthews-Belk Company 7.2539% X 833,990 = $ 60,497 -------- Total $212,818 ======== Total Relative Value of Company $833,990 Total Relative Value of Company Owned by Other Belk Companies - 212,818 -------- Net Relative Value of Company = $621,172 ======== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 621,172 / $1,155,623,145 = .0538% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.0538% X 60,000,007) / 1,150 = 28.0446 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1521 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 31.16 Book value per share(2)................................... 504.59 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 26.62 Book value per share...................................... 355.10 </TABLE> - --------------- (1) Based on 1,544 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 1,544 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1522 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 1,143 $1,149 $ 1,052 Net income.................................................. 47 37 48 Per common share Net income (loss)(1)...................................... 30.37 23.87 31.16 Dividends................................................. 25.00 25.00 20.00 Book value(2)............................................. 494.57 493.44 504.59 Total assets................................................ 854 879 889 Shareholders' equity........................................ 764 762 779 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED -------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $708 $675 Income from operations...................................... 11 24 </TABLE> - --------------- (1) Based on 1,544 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 1,544 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1523 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Comparable store sales decreased in fiscal year 1997 as a result of a weak local economy resulting from the closing of a large local corporation. BUSINESS OF THE COMPANY General. The Company operates a retail department store in downtown Belmont, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Matthews group office in Gastonia, North Carolina. Facilities. The Company owns its store property and building, which contains approximately 15,000 square feet of floor area. While the Company believes the building is generally adequate for its current needs, the Company's management is considering the possibility of relocating its store to a shopping center site. Competition. Specific competitors in the Company's market include the Wal-Mart, Dillard, Sears, and Penney stores in nearby Gastonia, North Carolina. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1524 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 518 33.5% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(b)(c)(d).............................................. 403 26.1% H. W. McKay Belk (Director and Executive Officer) (c)(d)(e)................................................. 443 28.7% John R. Belk (Director and Executive Officer) (c)(d)........ 403 26.1% Henderson Belk (Director) (b)............................... 26 1.7% Sarah Belk Gambrell (b)..................................... 149 9.7% Leroy Robinson (Director)................................... 0 * David Belk Cannon (Director) (g)............................ 148 9.6% James K. Glenn, Jr. (Director) (f).......................... 52 3.4% Mike Belk Hudson............................................ 80 5.2% B. Frank Matthews, II (Director and Executive Officer) (h)(i).................................................... 145 9.4% Eugene Robinson Matthews (Director and Executive Officer)... 15 1.0% Elizabeth Matthews Welton (j)............................... 133 8.6% J. V. Properties............................................ 282 18.3% Matthews-Belk Company....................................... 112 7.3% All Directors and Executive Officers as a group (10 persons).................................................. 945 61.2% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P.O. Box 2736, Winston-Salem, N.C. 27102; Mike Belk Hudson -- P.O. Box 556, Narragansett, R.I. 02882; B. Frank Matthews, II, Eugene Robinson Matthews, Elizabeth Matthews Welton -- 2240 Remount Road, Gastonia, N.C. 28054; and J. V. Properties, Matthews-Belk Company -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Represented by 51 shares held by Mary Claudia Belk Irrevocable Trust dated 1/4/94. Claudia W. Belk, the Trustee, is John M. Belk's wife. (b) Includes 26 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Includes 112 shares held by Matthews-Belk Company, which shares are voted by the members of the Executive Committee of the Board of Directors of such corporation, under authority given by the 20 <PAGE> 1525 directors of such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Includes 282 shares of J. V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (e) Includes 40 shares held by H. W. McKay Belk as custodian for his minor children. (f) Includes 32 shares held by James K. Glenn, Jr., Trustee under Will of Daisy Belk Mattox and 20 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (g) Includes 44 shares held by Residuary Trust U/W Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (h) Includes 8 shares held by B. Frank Matthew's wife, Betty Choate Matthews. (i) Includes 60 shares held by First Union National Bank of N.C., B. Frank Matthews, II and Annabelle Z. Royster, Co-Trustees under the Will of J. H. Matthews, Jr. The named Trustees have voting and investment power with respect to such shares. (j) Represented by 133 shares held by Elizabeth Matthews Welton Trust, Elizabeth Matthews Welton, Trustee U/A dated August 2, 1995. The Trustee has voting and investment power with respect to such shares. 21 <PAGE> 1526 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1527 BELK-MATTHEWS COMPANY UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 14,183 $ 10,815 Accounts receivable, net.................................. 218,793 244,313 Merchandise inventory..................................... 285,104 276,343 Receivable from affiliates, net........................... 229,257 192,091 Deferred income taxes..................................... 1,883 -- Other..................................................... 11,873 10,832 -------- -------- Total current assets........................................ 761,093 734,394 Investments................................................. 261 261 Property, plant and equipment, net.......................... 107,234 144,590 Other noncurrent assets..................................... 10,664 9,883 -------- -------- $879,252 $889,128 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 91,863 $ 72,821 Deferred income taxes..................................... -- 1,070 Accrued income taxes...................................... 1,050 13,992 -------- -------- Total current liabilities................................... 92,913 87,883 Deferred income taxes....................................... 7,897 3,649 Other noncurrent liabilities................................ 16,573 18,503 -------- -------- Total liabilities........................................... 117,383 110,035 Shareholders' equity: Common stock.............................................. 154,400 154,400 Retained earnings......................................... 607,469 624,693 -------- -------- Total shareholders' equity.................................. 761,869 779,093 -------- -------- $879,252 $889,128 ======== ======== </TABLE> F-2 <PAGE> 1528 BELK-MATTHEWS COMPANY UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $1,142,672 $1,148,795 $1,051,809 Operating costs and expenses............................... 1,086,220 1,110,657 993,969 ---------- ---------- ---------- Income from operations..................................... 56,452 38,138 57,840 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 4,956 9,030 6,975 Miscellaneous, net....................................... (1,836) (865) 1,123 ---------- ---------- ---------- Total other expense, net................................... 3,120 8,165 8,098 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 59,572 46,303 65,938 Income tax expense (benefit)............................... 12,673 9,454 17,834 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 46,899 36,849 48,104 ---------- ---------- ---------- Net earnings............................................... 46,899 36,849 48,104 Retained earnings at beginning of period................... 600,921 609,220 607,469 Dividends paid............................................. (38,600) (38,600) (30,880) ---------- ---------- ---------- Retained earnings at end of period......................... $ 609,220 $ 607,469 $ 624,693 ========== ========== ========== </TABLE> F-3 <PAGE> 1529 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1530 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1531 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES. SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 1532 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1533 SEC.SEC. 55-13-04 TO 55-13-19. Reserved for future codification purposes. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS. SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1534 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1535 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES. SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1536 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1537 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- ------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $1,051,809 $48,104 $58,963 $80,807 $779,093 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- ------- ------- ------- -------- Adjusted Shareholders' Statement............... $1,051,809 48,104 58,963 80,807 779,093 ========== ------- ------- ------- -------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ -- -- -- Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- ------- ------- ------- Total non-operating items...................... -- -- -- ------- ------- ------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (261) ------- ------- ------- -------- Per Model...................................... $48,104 $58,963 $80,807 $778,832 ======= ======= ======= ======== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (10,815) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... (192,090) Loans receivable from affiliates, net...... -- Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ -- Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ (202,905) Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ (202,905) ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1538 SUPPLEMENT NO. 36 <PAGE> 1539 BELK-MATTHEWS COMPANY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 36 <PAGE> 1540 BELK'S DEPARTMENT STORE OF BOONE, NORTH CAROLINA, INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk's Department Store of Boone, North Carolina, Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 141.8798 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 393,858 shares of New Belk Class A Common Stock which will represent approximately 0.6564% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1541 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1542 BELK'S DEPARTMENT STORE OF BOONE, NORTH CAROLINA, INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK'S DEPARTMENT STORE OF BOONE, NORTH CAROLINA, INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk's Department Store of Boone, North Carolina, Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 141.8798 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1543 BELK'S DEPARTMENT STORE OF BOONE, NORTH CAROLINA, INCORPORATED SUPPLEMENT NO. 37 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 37 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK'S DEPARTMENT STORE OF BOONE, NORTH CAROLINA, INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/ PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 21 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 1544 THE COMPANY The Company was incorporated as a North Carolina corporation in 1939. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 141.8798 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1545 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 4,844 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 1546 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 1547 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them 5 <PAGE> 1548 adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires the approval of the stockholders to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. 6 <PAGE> 1549 Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable 7 <PAGE> 1550 range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares 8 <PAGE> 1551 entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation, or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him whether, or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. 9 <PAGE> 1552 Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 1553 circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 1554 The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization 12 <PAGE> 1555 Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine 13 <PAGE> 1556 the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1557 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- --------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $ 9,569,442 $ 9,569,442 0.6 $(169,680) $ 5,911,345 EBITDA............... 1,244,034 1,233,277 7 (169,680) 8,802,619 EBIT................. 941,966 931,209 10 (169,680) 9,481,770 Net Income........... 570,123 563,456 15 -- 8,451,840 Book Equity.......... 5,810,684 4,162,185 1 -- 4,162,185 </TABLE> 15 <PAGE> 1558 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Gallant-Belk Company 4.5702% X $31,711,816 = $ 1,449,293 Belk Department Store of Forest City, N.C., Inc. 11.6208 X 7,237,010 = 840,998 Belk's Department Store of Lenoir, North Carolina, Incorporated 5.2766 X 6,891,590 = 363,642 Belk's Department Store of Morehead City, N.C., Inc. 5.0676 X 10,315,587 = 522,753 Belk's Department Store of Mount Airy, North Carolina, Incorporated 1.8703 X 3,686,607 = 68,951 Belk Department Store of Wilkesboro, N.C., Inc. 7.4797 X 3,451,898 = 258,192 ----------- Total $ 3,503,829 =========== Relative Operating Value of Company $ 9,481,770 Relative Operating Value of Other Companies Owned by Company + 3,503,829 ----------- Total Relative Value of Company = $12,985,599 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. 28.7879% X $12,985,599 = $ 3,738,281 Belk's Department Store of Lenoir, North Carolina, Incorporated 12.7946% X 12,985,599 = 1,661,456 ----------- Total $ 5,399,737 =========== Total Relative Value of Company $12,985,599 Total Relative Value of Company Owned by Other Belk Companies - 5,399,737 ----------- Net Relative Value of Company = $ 7,585,862 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 7,585,862 / $1,155,623,145 = .6564% </TABLE> 16 <PAGE> 1559 The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.6564% X 60,000,007) / 2,776 = 141.8798 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 1560 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 119.98 Book value per share(2)................................... 1,222.79 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 134.67 Book value per share...................................... 1,796.47 </TABLE> - --------------- (1) Based on 4,752 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 4,752 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 1561 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 8,929 $ 9,098 $ 9,569 Net income.................................................. 473 523 570 Per common share Net income (loss)(1)...................................... 99.53 110.05 119.98 Dividends................................................. 20.00 25.00 27.50 Book value(2)............................................. 1,045.26 1,130.31 1,222.79 Total assets................................................ 5,686 6,262 6,849 Shareholders' equity........................................ 4,967 5,371 5,811 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $6,770 $7,054 Income from operations...................................... 619 698 </TABLE> - --------------- (1) Based on 4,752 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 4,752 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 19 <PAGE> 1562 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Boone Mall in Boone, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store conducts operations independent of any group office. Facilities. The Company leases its store building, which contains approximately 68,000 square feet of floor area. The current term of the store lease expires in 2009. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Penney and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 20 <PAGE> 1563 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 3,016.0 63.5% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(c)(d)................................................. 2,319.4 48.8% H. W. McKay Belk (Director and Executive Officer) (b)(c)(d)................................................. 2,319.4 48.8% John R. Belk (Director and Executive Officer) (b)(c)(d)..... 2,319.4 48.8% Sarah Belk Gambrell (Director).............................. 1,136.0 23.9% Leroy Robinson (b)(c)....................................... 291.4 6.1% Katherine McKay Belk (b)(c)................................. 291.4 6.1% Katherine Belk Morris (b)(c)................................ 343.4 7.2% Thomas M. Belk, Trustee U/A dated September 15, 1993........ 251.4 5.3% Montgomery Investment Company............................... 704 14.8% Belk Enterprises, Inc....................................... 1,368 28.8% Belk's Department Store of Lenoir, North Carolina Incorporated.............................................. 608 12.8% All Directors and Executive Officers as a group (5 persons).................................................. 4,308.0 90.7% </TABLE> - --------------- The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Leroy Robinson, Katherine McKay Belk, and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207, Montgomery Investment Company, Belk Enterprises, Inc. and Belk's Department Store of Lenoir, North Carolina, Incorporated -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors, and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 704 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 40 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Includes 251.4 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (d) Includes 1,368 shares held by Belk Enterprises, Inc. and 608 shares of Belk's Department Store of Lenoir, North Carolina, Incorporated, which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such company consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. 21 <PAGE> 1564 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1565 BELK'S DEPARTMENT STORE OF BOONE, NORTH CAROLINA, INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $1,441,996 $ 339,629 Accounts receivable, net.................................. 1,070,275 1,202,950 Merchandise inventory..................................... 1,832,452 1,999,761 Receivable from affiliates, net........................... -- 23,256 Deferred income taxes..................................... 18,441 17,746 Other..................................................... 89,275 88,126 ---------- ---------- Total current assets........................................ 4,452,439 3,671,468 Loans receivable from affiliates, net....................... 1,446 1,446 Investments................................................. 14,528 1,648,499 Property, plant and equipment, net.......................... 1,758,639 1,498,532 Other noncurrent assets..................................... 34,745 28,854 ---------- ---------- $6,261,797 $6,848,799 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt.................... $ -- $ 72,243 Accounts payable and accrued expenses..................... 607,138 614,405 Payables to affiliates, net............................... 2,256 -- Accrued income taxes...................................... 98,399 71,638 ---------- ---------- Total current liabilities................................... 707,793 758,286 Deferred income taxes....................................... 100,270 60,428 Long-term debt, excluding current installments.............. -- 122,408 Other noncurrent liabilities................................ 82,493 96,993 ---------- ---------- Total liabilities........................................... 890,556 1,038,115 Shareholders' equity: Common stock.............................................. 475,200 475,200 Retained earnings......................................... 4,896,041 5,335,484 ---------- ---------- Total shareholders' equity.................................. 5,371,241 5,810,684 ---------- ---------- $6,261,797 $6,848,799 ========== ========== </TABLE> F-2 <PAGE> 1566 BELK'S DEPARTMENT STORE OF BOONE, NORTH CAROLINA, INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $8,929,087 $9,098,175 $9,569,442 Operating costs and expenses............................... 8,207,392 8,281,087 8,643,644 ---------- ---------- ---------- Income from operations..................................... 721,695 817,088 925,798 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (11,936) 24,473 (22,124) Dividend income.......................................... 8,592 9,524 10,756 Gain (loss) on disposal of property, plant and equipment............................................. 19 -- -- Miscellaneous, net....................................... 2,418 1,486 5,411 ---------- ---------- ---------- Total other expense, net................................... (907) 35,483 (5,957) ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 720,788 852,571 919,841 Income tax expense (benefit)............................... 247,841 329,624 349,718 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 472,947 522,947 570,123 ---------- ---------- ---------- Net earnings............................................... 472,947 522,947 570,123 Retained earnings at beginning of period................... 4,113,987 4,491,894 4,896,041 Dividends paid............................................. (95,040) (118,800) (130,680) ---------- ---------- ---------- Retained earnings at end of period......................... $4,491,894 $4,896,041 $5,335,484 ========== ========== ========== </TABLE> F-3 <PAGE> 1567 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1568 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1569 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 1570 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1571 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1572 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1573 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1574 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1575 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 9,569,442 $570,123 $941,966 $1,244,034 $ 5,810,684 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- ---------- ----------- Adjusted Shareholders' Statement.............. $ 9,569,442 570,123 941,966 1,244,034 5,810,684 =========== -------- -------- ---------- ----------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... -- -- -- Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- ---------- Total non-operating items..................... -- -- -- -------- -------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. (6,667) (10,757) (10,757) Adjustment for ownership in other Belk entities.................................. (1,648,499) -------- -------- ---------- ----------- Per Model..................................... $563,456 $931,209 $1,233,277 $ 4,162,185 ======== ======== ========== =========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (339,629) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (23,256) Loans receivable from affiliates, net..... (1,446) Liabilities Notes payable............................. -- Current installments of long-term debt.... 72,243 Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ 122,408 Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (169,680) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $ (169,680) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1576 SUPPLEMENT NO. 37 <PAGE> 1577 BELK'S DEPARTMENT STORE OF BOONE, N.C., INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 37 <PAGE> 1578 BELK'S DEPARTMENT STORE OF BREVARD, N.C., INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk's Department Store of Brevard, N.C., Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 39.2961 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 147,596 shares of New Belk Class A Common Stock which will represent approximately 0.2460% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1579 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1580 BELK'S DEPARTMENT STORE OF BREVARD, N.C., INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK'S DEPARTMENT STORE OF BREVARD, N.C., INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk's Department Store of Brevard, N.C., Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 39.2961 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1581 BELK'S DEPARTMENT STORE OF BREVARD, N.C., INCORPORATED SUPPLEMENT NO. 38 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 38 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK'S DEPARTMENT STORE OF BREVARD, N.C., INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/ PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 1582 THE COMPANY The Company was incorporated as a North Carolina corporation in 1937. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 39.2961 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1583 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to share the risk associated with the uncertain prospects for the Company's store in its current location. The store is located in a relatively small market that is also close to larger markets with larger Belk stores and other competitors. The prospects for growth of the Company's store may be limited because of the size of its market and its close proximity to such competition. The Merger would allow the Company to share with New Belk the risk associated with the Company's current market and participate in the growth of other Belk stores located in markets with better growth prospects. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. 3 <PAGE> 1584 Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 4,800 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New 4 <PAGE> 1585 Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a 5 <PAGE> 1586 quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires Stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a 6 <PAGE> 1587 meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. 7 <PAGE> 1588 The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove 8 <PAGE> 1589 him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct 9 <PAGE> 1590 in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage 10 <PAGE> 1591 of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. 11 <PAGE> 1592 With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation (i) if the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. 12 <PAGE> 1593 Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. 13 <PAGE> 1594 A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. 14 <PAGE> 1595 Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............. $2,524,845 $2,524,845 0.6 $634,880 $ 880,027 EBITDA................ 269,902 265,761 7 634,880 1,225,447 EBIT.................. 114,421 110,280 10 634,880 467,920 Net Income............ 46,907 43,947 15 -- 659,205 Book Equity........... 3,633,143 3,632,918 1 -- 3,632,918 </TABLE> 15 <PAGE> 1596 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ---------- Total $ N/A ========== Relative Operating Value of Company $3,632,918 Relative Operating Value of Other Companies Owned by Company + -- ---------- Total Relative Value of Company = $3,632,918 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. 1.1667% X $3,632,918 = $ 42,385 Belk of Waycross, Ga., Inc. 20.5833 X 3,632,918 = 747,775 ---------- Total $ 790,160 ========== Total Relative Value of Company $3,632,918 Total Relative Value of Company Owned by Other Belk Companies - 790,160 ---------- Net Relative Value of Company = $2,842,758 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $2,842,758 / $1,155,623,145 = .2460% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.2460% X 60,000,007) / 3,756 = 39.2961 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1597 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 9.77 Book value per share(2)................................... 756.90 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 37.30 Book value per share...................................... 497.56 </TABLE> - --------------- (1) Based on 4,800 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 4,800 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1598 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 2,804 $ 2,602 $ 2,525 Net income (loss)........................................... (35) (83) 47 Per common share Net income (loss)(1)...................................... (7.25) (17.34) 9.77 Dividends................................................. -- -- -- Book value(2)............................................. 653.82 706.19 756.90 Total assets................................................ 4,805 5,139 5,255 Shareholders' equity........................................ 3,138 3,390 3,633 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $1,761 $1,744 Income from operations...................................... 7 68 </TABLE> - --------------- (1) Based on 4,800 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 4,800 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1599 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Income from operations decreased in fiscal year 1996 as a percent of sales due to a decrease in sales without a corresponding decrease in operating expenses. Comparable store sales decreased 7.2% in fiscal year 1996 due to lay-offs at the market's largest employer. Income from operations increased in fiscal year 1997 to 1.9% of sales due to increased gross profit attributable to improved inventory management which resulted in fewer markdowns and to a decrease in advertising expense. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Forest Gate Shopping Center in Brevard, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is operated out of the Kuhne/Greiner group office in Greenville, South Carolina. Facilities. The Company owns the store property and building, which contains approximately 30,000 square feet of floor area, together with an adjacent parking area. The company believes the facility is adequate to meet its current needs. Competition. The Company's principal competitor in the market is Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1600 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 2,180 45.4% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(d)(e)................................................. 1,492 31.1% H. W. McKay Belk (Director and Executive Officer) (b)(d)(f)................................................. 1,452 30.3% John R. Belk (Director and Executive Officer) (b)(d)(g)..... 1,414 29.5% Sarah Belk Gambrell (Director) (c).......................... 908 18.9% John A. Kuhne (Director and Executive Officer).............. 0 * Robert E. Greiner (Director and Executive Officer).......... 0 * Welch Bostick, Jr. (Executive Officer)...................... 0 * Leroy Robinson (b).......................................... 348 7.3% Katherine McKay Belk (b)(i)................................. 508 10.6% Katherine Belk Morris (b)(h)................................ 410 8.5% Kate Simpson (j)(k)......................................... 960 20.0% Lucy Simpson Kuhne (j)(k)................................... 960 20.0% Claire Russo (j)(k)......................................... 960 20.0% Thomas M. Belk, Trustee U/A dated September 15, 1993........ 348 7.3% Montgomery Investment Company............................... 696 14.5% Belk of Waycross, Ga., Inc.................................. 948 20.6% Simpson Enterprises, Inc.................................... 240 5% Kate McArver Simpson, Lucy Caroline Bowden Simpson Kuhne and Hazel Claire M. Efird as Personal Representative of the Estate of William Henry Belk Simpson, Deceased............ 720 15.0% All Directors and Executive Officers as a group (7 persons).................................................. 3,186 66.4% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Leroy Robinson, Katherine McKay Belk, and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; John A. Kuhne, Lucy S. Kuhne, Claire Russo, Robert E. Greiner and Welch Bostick, Jr. -- 14 S. Main Street, Greenville, S.C. 29606, Simpson Enterprises, Inc., c/o Mrs. Kate Simpson, P.O. Box 17433, Greenville, S.C. 29606; Kate McArver Simpson, Lucy Caroline Bowden Simpson Kuhne and Hazel Claire M. Efird -- P.O. Box 17433, Greenville, S.C. 29606. All shares of common stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 696 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. 20 <PAGE> 1601 (b) Includes 348 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 28 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 56 shares held by Belk Enterprises, Inc. and 988 shares held by Belk of Waycross, Ga., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (e) Includes 40 shares held by Thomas M. Belk, Jr., as custodian for his minor children and 56 shares held as custodian for the minor children of his brother, H. W. McKay Belk. (f) Includes 60 shares held by H. W. McKay Belk as custodian for his minor children. (g) Includes 20 shares held by John R. Belk as custodian for his minor children (h) Includes 60 shares held by Katherine Belk Morris as custodian for her minor children (i) Includes 160 shares held by Katherine M. Belk as custodian for her minor grandchildren (j) Includes 720 shares held by the Estate of William Henry Belk Simpson. Voting and investment power is shared by the Personal Representatives, who are Kate Simpson, Lucy Kuhne and Claire Russo. (k) Includes 240 shares held by Simpson Enterprises, Inc. Voting and investment power is shared by the Personal Representatives of the Estate of William Henry Belk Simpson, who are Kate Simpson, Lucy Kuhne and Claire Russo. 21 <PAGE> 1602 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 </TABLE> F-1 <PAGE> 1603 BELK'S DEPARTMENT STORE OF BREVARD, N.C., INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 68,271 $ 73,239 Accounts receivable, net.................................. 337,276 385,482 Merchandise inventory..................................... 511,140 494,860 Refundable income taxes................................... 18,418 29,741 Deferred income taxes..................................... 12,541 -- Other..................................................... 78,222 60,521 ---------- ---------- Total current assets........................................ 1,025,868 1,043,843 Investments................................................. 2,570,829 2,823,447 Property, plant and equipment, net.......................... 1,535,217 1,382,195 Other noncurrent assets..................................... 7,173 5,499 ---------- ---------- $5,139,087 $5,254,984 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt.................... $ 725,000 $ -- Accounts payable and accrued expenses..................... 144,923 122,702 Payables to affiliates, net............................... 154,539 708,120 Deferred income taxes..................................... -- 64,671 ---------- ---------- Total current liabilities................................... 1,024,462 895,493 Deferred income taxes....................................... 701,894 701,186 Other noncurrent liabilities................................ 23,034 25,163 ---------- ---------- Total liabilities........................................... 1,749,390 1,621,842 Shareholders' equity: Common stock.............................................. 480,000 480,000 Net unrealized gain (loss) on investments, net of income taxes.................................................. 1,670,493 1,867,032 Retained earnings......................................... 1,239,204 1,286,110 ---------- ---------- Total shareholders' equity.................................. 3,389,697 3,633,142 ---------- ---------- $5,139,087 $5,254,984 ========== ========== </TABLE> F-2 <PAGE> 1604 BELK'S DEPARTMENT STORE OF BREVARD, N.C., INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $2,804,016 $2,602,304 $2,524,844 Operating costs and expenses............................... 2,802,938 2,676,306 2,477,770 ---------- ---------- ---------- Income from operations..................................... 1,078 (74,002) 47,074 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (61,593) (65,474) (48,793) Dividend income.......................................... 50,143 54,636 61,737 Gain (loss) on sale of securities........................ 5,391 18,706 4,141 Miscellaneous, net....................................... (5,688) (716) 1,468 ---------- ---------- ---------- Total other expense, net................................... (11,747) 7,152 18,553 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ (10,669) (66,850) 65,627 Income tax expense (benefit)............................... 24,137 16,385 18,721 Earnings from continuing operations before equity in earnings of unconsolidated entities...................... (34,806) (83,235) 46,906 ---------- ---------- ---------- Net earnings............................................... (34,806) (83,235) 46,906 Retained earnings at beginning of period................... 1,357,245 1,322,439 1,239,204 ---------- ---------- ---------- Retained earnings at end of period......................... $1,322,439 $1,239,204 $1,286,110 ========== ========== ========== </TABLE> F-3 <PAGE> 1605 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1606 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1607 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATIONS ACT STATE OF NORTH CAROLINA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES. SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 1608 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1609 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS. SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1610 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1611 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES. SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1612 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1613 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $2,524,845 $46,907 $114,421 $269,902 $3,633,142 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- ------- -------- -------- ---------- Adjusted Shareholders' Statement............... $2,524,845 46,907 114,421 269,902 3,633,142 ========== ------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ -- -- -- Gain/loss on sale of securities.............. (2,960) (4,141) (4,141) Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- ------- -------- -------- Total non-operating items...................... (2,960) (4,141) (4,141) ------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (225) ------- -------- -------- ---------- Per Model...................................... $43,947 $110,280 $265,761 $3,632,917 ======= ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (73,240) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... -- Loans receivable from affiliates, net...... -- Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ 708,120 Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ 634,880 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ 634,880 ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1614 SUPPLEMENT NO. 38 <PAGE> 1615 BELK'S DEPARTMENT STORE OF BREVARD, N.C., INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 38 <PAGE> 1616 BELK-BECK COMPANY OF BURLINGTON, NORTH CAROLINA, INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Beck Company of Burlington, North Carolina, Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 108.1637 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 481,112 shares of New Belk Class A Common Stock which will represent approximately 0.8019% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1617 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1618 BELK-BECK COMPANY OF BURLINGTON, NORTH CAROLINA, INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-BECK COMPANY OF BURLINGTON, NORTH CAROLINA, INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Beck Company of Burlington, North Carolina, Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 108.1637 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1619 BELK-BECK COMPANY OF BURLINGTON, NORTH CAROLINA, INC. SUPPLEMENT NO. 39 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 39 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-BECK COMPANY OF BURLINGTON, NORTH CAROLINA, INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 21 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 1620 THE COMPANY The Company was incorporated as a North Carolina corporation in 1920. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 108.1637 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1621 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 16,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A 3 <PAGE> 1622 Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than 4 <PAGE> 1623 the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. 5 <PAGE> 1624 Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be 6 <PAGE> 1625 filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall 7 <PAGE> 1626 otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under to the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 1627 Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him whether or not involving action in his or her official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. 9 <PAGE> 1628 Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 1629 circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation that within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 1630 The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization 12 <PAGE> 1631 Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine 13 <PAGE> 1632 the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1633 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $15,182,639 $15,182,639 0.6 $ (926,698) $10,036,282 EBITDA............... 1,580,906 1,579,365 7 (926,698) 11,982,254 EBIT................. 1,066,312 1,064,771 10 (926,698) 11,574,409 Net Income........... 658,692 657,730 15 -- 9,865,950 Book Equity.......... 7,995,855 6,937,593 1 -- 6,937,593 </TABLE> 15 <PAGE> 1634 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk's Department Store of Albemarle, North Carolina, Incorporated 4.7493% X $ 3,321,651 = $ 157,755 Belk Department Store of Charleston, S.C., Inc. .5965 X 31,169,909 = 185,929 Belk Department Store of Eden, N.C., Inc. 2.6949 X 3,010,826 = 81,139 Belk-Beck Co. of High Point, N.C., Inc. 7.0025 X 6,270,761 = 439,110 Belk's Department Store of Mount Airy, North Carolina, Incorporated 2.8678 X 3,686,607 = 105,725 Belk Department Store of Reidsville, N.C., Inc. 7.4883 X 2,024,233 = 151,581 Belk Department Store of Shelby, N.C., Inc. 6.1594 X 13,263,329 = 816,942 ----------- Total $ 1,938,179 =========== Relative Operating Value of Company $11,982,254 Relative Operating Value of Other Companies Owned by Company + 1,938,179 ----------- Total Relative Value of Company = $13,920,433 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 32.2359% X $13,920,433 = $ 4,487,378 Belk Enterprises, Inc. 1.1972% X 13,920,433 = 166,655 ----------- Total $ 4,654,033 =========== Total Relative Value of Company $13,920,433 Total Relative Value of Company Owned by Other Belk Companies - 4,654,033 ----------- Net Relative Value of Company = $ 9,266,400 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $9,266,400 / $1,155,623,145 = .8019% </TABLE> 16 <PAGE> 1635 The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.8019% X 60,000,007) / 4,448 = 108.1637 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 1636 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 98.58 Book value per share(2)................................... 1,196.63 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 102.67 Book value per share...................................... 1,369.56 </TABLE> - --------------- (1) Based on 6,682 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 6,682 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 1637 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 14,155 $ 14,812 $ 15,183 Net income.................................................. 909 634 659 Per common share Net income (loss)(1)...................................... 136.11 94.94 98.58 Dividends................................................. 30.00 35.00 35.00 Book value(2)............................................. 1,073.11 1,133.05 1,196.63 Total assets................................................ 8,267 8,952 10,671 Shareholders' equity........................................ 7,171 7,571 7,996 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $10,512 $10,546 Income from operations...................................... 557 675 </TABLE> - --------------- (1) Based on 6,682 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 6,682 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 19 <PAGE> 1638 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Holly Hill Mall in Burlington, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Huffstetler group office in Greensboro, North Carolina. Facilities. The Company leases its store building, which contains approximately 88,000 square feet of floor area. The current term of the lease expires in 2009. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Penney, Sears and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 20 <PAGE> 1639 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)........................................... 3,200 47.9% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(d)(e)(f).............................................. 2,438 36.5% H. W. McKay Belk (Director and Executive Officer) (b)(d)(e)(g).............................................. 2,400 35.9% John R. Belk (Director and Executive Officer) (b)(d)(e)(h).............................................. 2,374 35.5% Henderson Belk (Director) (c)............................... 536 8.0% Sarah Belk Gambrell (b)..................................... 676 10.1% Leroy Robinson (Director) (b)............................... 110 1.6% David Belk Cannon (Director) (j)............................ 486 7.3% James K. Glenn, Jr. (Director) (i).......................... 402 6.0% Pete Huffstetler (Executive Officer)........................ 0 * Gordon J. Tendler (Executive Officer)....................... 0 * Darrell Murphy (Executive Officer).......................... 0 * J. V. Properties............................................ 2,154 32.2% NationsBank, N.A. (k)(l).................................... 664 9.9% SunTrust Bank, Augusta, N.A. (m)(n)......................... 390 5.8% All Directors and Executive Officers as a group (9 persons).................................................. 4,328 64.8% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P. O. Box 2736, Winston-Salem, N.C. 27102; Pete Huffstetler, Darrell Murphy and Gordon J. Tendler -- 1-104 Carolina Circle Mall, Greensboro, N.C. 27405, J. V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500, NationsBank, N.A. -- Sara McDonald, NationsBank, N.A., Charlotte, N.C. 28255, SunTrust Bank, Augusta, N.A. -- Carlton S. Faulk, V.P., P. O. Box 927, SunTrust Bank, Augusta, N.A., Augusta, Ga. 30903-0927. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 160 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 110 shares held by Milburn Investment Company, of which the Estate of Thomas M. Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas M. Belk, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 536 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by 21 <PAGE> 1640 John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 80 shares held by Belk Enterprises, Inc. which shares are voted by the members of the Executive Committee of the Board of Directors of such corporation, under authority given by the directors of such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (e) Includes 2,154 shares of J. V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (f) Includes 24 shares held by Thomas M. Belk, Jr., as custodian for his minor children and 30 shares held by his spouse, Sarah F. Belk. (g) Includes 10 shares held by H. W. McKay Belk as custodian for his minor children, and 30 shares held by his spouse, Nina F. Belk. (h) Includes 30 shares held by his spouse, Kimberly D. Belk. (i) Includes 16 shares held by James K. Glenn, Jr., Trustee under Will of Daisy Belk Mattox, 90 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al and 176 shares held by John Belk Stevens Trust U/A ITEM III, Section B f/b/o Mary S. Whelchel. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (j) Includes 160 shares held by Residuary Trust U/W Mrs. Henry Belk Bannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (k) Includes 88 shares held by NationsBank as Trustee for the Daisy Belk Doughton Lange Revocable Trust dated March 25, 1997, 188 shares held by Sara Dew Misner and North Carolina National Bank, Co-trustees for Daisy Doughton Lange U/A dated November 5, 1965, and 200 shares held by J. L. Green, Jr. and N. C. National Bank, Trustees U/A dated July 9, 1965 -- Sadie Belk Cummings, Grantor. NationsBank has sole voting and investing power with respect to such shares. (l) 188 shares held by Daisy Doughton Lange and North Carolina National Bank, Trustees for Robert L. Doughton, II under Agreement dated July 21, 1965. The names Trustees have voting and investment power with respect to such shares. (m) Includes 136 shares held by SunTrust Bank, Augusta, N.A. and Joan C. Whelchel as Successor Co-Trustees under Agreement with Mary Stevens Whelchel dated September 15, 1950 and 60 shares held by SunTrust Bank, August, N.A. and Joan C. Whelchel, Successor Co-Trustees under Will of Nealie Belk Stevens dated December 1, 1952, 6 shares held by SunTrust Bank, Augusta, N.A. and Joan C. Whelchel, Successor Co-Trustee under Will of Nealie Belk Stevens for Mary Stevens Whelchel, 12 shares held by SunTrust Bank, Augusta, N.A. and Joan C. Whelchel, as Successor Co-Trustees under Agreement with Merritt Cofer Whelchel, Jr., 152 shares held by SunTrust Bank, Augusta, N.A. and Joan C. Whelchel as Successor Co-Trustees under Agreement with Mary Ruth Whelchel and 12 shares held by SunTrust Bank, Augusta, N.A. and Joan C. Whelchel as Successor Co-Trustees under Agreement with Sadie Elizabeth Whelchel. SunTrust Bank and Joan C. Whelchel have voting and investment power with respect to such shares. (n) Includes 12 shares held by SunTrust Bank, Augusta, N.A. as Guardian for Frankie Stevens Whelchel. SunTrust Bank has voting power with respect to such shares. 22 <PAGE> 1641 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1642 BELK-BECK COMPANY OF BURLINGTON, NORTH CAROLINA, INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 6, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 215,981 $ 193,751 Accounts receivable, net.................................. 2,361,708 2,731,491 Merchandise inventory..................................... 2,497,500 2,576,384 Receivable from affiliates, net........................... 958,430 1,752,268 Deferred income taxes..................................... 54,225 36,407 Other..................................................... 155,473 143,154 ---------- ----------- Total current assets........................................ 6,243,317 7,433,455 Loans receivable from affiliates, net....................... 14,046 14,046 Investments................................................. 24,895 1,058,262 Property, plant and equipment, net.......................... 2,631,971 2,136,243 Other noncurrent assets..................................... 37,756 28,939 ---------- ----------- $8,951,985 $10,670,945 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable............................................. $ -- $ 1,033,367 Accounts payable and accrued expenses..................... 925,756 1,052,013 Accrued income taxes...................................... 36,255 150,181 ---------- ----------- Total current liabilities................................... 962,011 2,235,561 Deferred income taxes....................................... 283,603 294,029 Other noncurrent liabilities................................ 135,338 145,500 ---------- ----------- Total liabilities........................................... 1,380,952 2,675,090 Shareholders' equity: Common stock.............................................. 668,200 668,200 Retained earnings......................................... 6,902,833 7,327,655 ---------- ----------- Total shareholders' equity.................................. 7,571,033 7,995,855 ---------- ----------- $8,951,985 $10,670,945 ========== =========== </TABLE> F-2 <PAGE> 1643 BELK-BECK COMPANY OF BURLINGTON, NORTH CAROLINA, INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $14,155,724 $14,812,695 $15,184,354 Less: Leased Sales...................................... 1,159 987 1,715 ----------- ----------- ----------- Net sales............................................... 14,154,565 14,811,708 15,182,639 Operating costs and expenses............................ 12,683,903 13,724,669 14,119,121 ----------- ----------- ----------- Income from operations.................................. 1,470,662 1,087,039 1,063,518 ----------- ----------- ----------- Other income (expense): Interest, net......................................... 34,415 (19,471) (11,654) Dividend income....................................... -- 280 280 Gain (loss) on disposal of property, plant and equipment.......................................... -- -- 1,261 Miscellaneous, net.................................... (16,037) (33,650) 1,253 ----------- ----------- ----------- Total other expense, net................................ 18,378 (52,841) (8,860) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 1,489,040 1,034,198 1,054,658 Income tax expense (benefit)............................ 579,544 399,809 395,966 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 909,496 634,389 658,692 ----------- ----------- ----------- Net earnings............................................ 909,496 634,389 658,692 Retained earnings at beginning of period................ 5,793,278 6,502,314 6,902,833 Dividends paid.......................................... (200,460) (233,870) (233,870) ----------- ----------- ----------- Retained earnings at end of period...................... $ 6,502,314 $ 6,902,833 $ 7,327,655 =========== =========== =========== </TABLE> F-3 <PAGE> 1644 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1645 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1646 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 1647 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1648 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1649 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1650 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1651 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1652 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ---------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................. $15,182,639 $658,692 $1,066,312 $1,580,906 $7,995,855 Adjustments to eliminate less than wholly-owned subsidiaries................. -- -- -- -- -- ----------- -------- ---------- ---------- ---------- Adjusted Shareholders' Statement............ $15,182,639 658,692 1,066,312 1,580,906 7,995,855 =========== -------- ---------- ---------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............. (788) (1,261) (1,261) Gain/loss on sale of securities........... -- -- -- Impairment loss........................... -- -- -- Equity in earnings of unconsolidated subsidiaries............................ -- -- -- Gain/loss on discontinued operations...... -- -- -- Adjustment to tax expense................. -- -- -- -- -------- ---------- ---------- Total non-operating items................... (788) (1,261) (1,261) -------- ---------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities..................... (175) (280) (280) Adjustment for ownership in other Belk entities................................ (1,058,262) -------- ---------- ---------- ---------- Per Model................................... $657,729 $1,064,771 $1,579,365 $6,937,593 ======== ========== ========== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................. $ (193,751) Negative cash balances reclassified to accounts payable...................... -- Receivables from affiliates, net........ (1,752,268) Loans receivable from affiliates, net... (14,046) Liabilities Notes payable........................... 1,033,367 Current installments of long-term debt.................................. -- Current portion of obligations under capital leases........................ -- Payables to affiliates, net............. -- Long-term debt, excluding current installments.......................... -- Obligations under capital leases, excluding current portion............. -- Loans payable to affiliates, net........ -- ----------- Net debt (cash)............................. (926,698) Adjustments to eliminate less than wholly-owned subsidiaries................. -- ----------- Per Model................................... $ (926,698) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1653 SUPPLEMENT NO. 39 <PAGE> 1654 BELK-BECK COMPANY OF BURLINGTON, NORTH CAROLINA, INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 ------------------- ------------------------------- Signature ------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 39 <PAGE> 1655 BELK BROTHERS COMPANY , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Brothers Company (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 96.5373 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 9,605,225 shares of New Belk Class A Common Stock which will represent approximately 16.0087% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 1656 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1657 BELK BROTHERS COMPANY ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK BROTHERS COMPANY: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Brothers Company (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 96.5373 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1658 BELK BROTHERS COMPANY SUPPLEMENT NO. 40 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 40 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK BROTHERS COMPANY, A NORTH CAROLINA CORPORATION (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/ PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 21 SELECTED HISTORICAL FINANCIAL INFORMATION................... 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 23 General................................................... 23 Results of Operations..................................... 23 Comparison of Nine Months Ended November 1, 1997 and November 2, 1996....................................... 24 Comparison of Fiscal Years Ended February 1, 1997 and February 3, 1996....................................... 24 Comparison of Fiscal Years Ended February 3, 1996 and January 31, 1995....................................... 25 Seasonality and Quarterly Fluctuations.................... 26 Liquidity and Capital Resources........................... 26 Impact of Inflation....................................... 27 BUSINESS OF THE COMPANY..................................... 27 SECURITY OWNERSHIP OF THE COMPANY........................... 31 INDEX TO HISTORICAL FINANCIAL STATEMENTS.................... F-1 Report of KPMG Peat Marwick LLP, Independent Auditors..... F-2 Consolidated Balance Sheets............................... F-3 Consolidated Statements of Operations..................... F-4 Consolidated Statements of Shareholders' Equity........... F-5 Consolidated Statements of Cash Flows..................... F-6 Notes to Consolidated Financial Statements................ F-7 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 1659 THE COMPANY The Company was incorporated as a North Carolina corporation in 1921. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 96.5373 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such 2 <PAGE> 1660 other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see " -- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 140,888 shares of Common Stock. 3 <PAGE> 1661 Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the 4 <PAGE> 1662 holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distribution does not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate 5 <PAGE> 1663 number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without 6 <PAGE> 1664 prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more 7 <PAGE> 1665 than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Unless the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 1666 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation, or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or 9 <PAGE> 1667 otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, the participating shares are reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested 10 <PAGE> 1668 stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any 11 <PAGE> 1669 security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. 12 <PAGE> 1670 After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is 13 <PAGE> 1671 made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1672 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ------------ ------------ -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $185,048,897 $185,048,897 0.6 $84,466,582 $26,562,756 EBITDA............... 93,106,362 17,838,176 7 84,466,582 40,400,650 EBIT................. 88,450,755 13,182,569 10 84,466,582 47,359,108 Net Income........... 49,798,772 5,929,807 15 -- 88,947,105 Book Equity.......... 125,681,609 53,205,207 1 -- 53,205,207 </TABLE> 15 <PAGE> 1673 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk Department Store of Ahoskie, N.C., Inc. 23.6576% X $ 3,798,793 = $ 898,703 Belk's Department Store, Incorporated of Aiken, South Carolina 16.4444% X 3,110,056 = 511,430 Belk's Department Store of Albemarle, North Carolina, Incorporated 43.4697% X 3,321,651 = 1,443,912 Gallant-Belk Company 2.5103% X 31,711,816 = 796,062 Belk's Department Store of Asheville, North Carolina, Incorporated 11.9829% X 8,095,359 = 970,059 Belk-Simpson Company, Incorporated of Beaufort, South Carolina 16.3492% X 7,226,118 = 1,181,412 Belk Enterprises, Inc. 9.0466% X 357,823,093 = 32,370,824 Belk-Matthews Company 18.2642% X 833,990 = 152,322 Belk-Beck Company of Burlington, North Carolina, Inc. 32.2359% X 13,920,433 = 4,487,377 Belk's Department Store of Camden, S.C., Incorporated 11.4193% X 11,802,653 = 1,347,780 Belk's Department Store of Cartersville, Georgia, Incorporated 4.7529% X 3,810,247 = 181,097 Belk Department Store of Charleston, S.C., Inc. 2.2824% X 31,169,909 = 711,422 Belk-Matthews Company of Cherryville, N.C., Incorporated 11.6831% X 601,119 = 70,229 Belk's Department Store of Chesterfield, S.C., Incorporated 5.8697% X 967,437 = 56,786 Parks-Belk Company of Clarksville, Tennessee 3.6346% X 10,855,465 = 394,553 Belk Department Store of Clinton, N.C., Inc. 10.4372% X 11,043,990 = 1,152,683 Belk's Department Store of Conway, S.C., Incorporated 9.6875% X 2,033,804 = 197,025 </TABLE> 16 <PAGE> 1674 <TABLE> <CAPTION> TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk-Simpson Company of Corbin, Kentucky, Incorporated 10.9524% X 6,975,250 = 763,957 Belk of Miss., Inc. .3672% X 19,360,988 = 71,094 Belk of Cornelia, Ga. Inc. 16.3484% X 4,947,119 = 808,775 Belk of Covington, Ga., Inc. 11.9048% X 4,579,688 = 545,203 Belk of Dalton, Ga., Inc. 9.4967% X 8,605,017 = 817,193 Belk of Danville, Va., Inc. 18.2516% X 16,469,104 = 3,005,875 Belk's Department Store of Eden, N.C., Inc. 5.0048% X 3,010,826 = 150,686 Belk Department Store of Edenton, N.C., Inc. 6.9884% X 1,566,173 = 109,450 Belk Department Store of Elkin, N.C., Inc. 12.8289% X 1,368,240 = 175,530 Belk Department Store of Forest City, N.C., Inc. .3823% X 7,237,010 = 27,667 Belk's Department Store of Gaffney, South Carolina, Incorporated 7.9583% X 1,141,654 = 90,856 Matthews-Belk Company 15.0117% X 35,812,651 = 5,376,088 Belk Department Store of Greenville, N.C., Inc. 8.5493% X 25,446,468 = 2,175,495 Belk-Simpson Company, Greenville, South Carolina 7.2509% X 42,976,855 = 3,116,209 Belk's Department Store of Hartsville, S.C., Inc. 11.9212% X 3,783,866 = 451,082 Belk of Hartwell, Ga., Inc. 15.1667% X 1,270,811 = 192,740 Belk-Simpson Company of Hendersonville, N.C., Incorporated 17.2656% X 9,384,434 = 1,620,279 Belk Department Store of Hickory, N.C., Inc. 22.8608% X 26,225,818 = 5,995,432 Belk-Beck Co. of High Point, N.C., Inc. 24.8023% X 6,270,761 = 1,555,293 Belk's Department Store of Jacksonville, N.C., Inc. 5.1760% X 29,859,953 = 1,545,551 Belk of LaGrange, Ga., Inc. 16.1591% X 25,267,525 = 4,083,005 </TABLE> 17 <PAGE> 1675 <TABLE> <CAPTION> TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk's Department Store of Lancaster, S.C., Inc. 17.7617% X 13,686,538 = 2,430,962 Belk-Simpson Realty Company 16.7000% X 582,350 = 97,252 Belk's Department Store of Laurens, South Carolina, Incorporated 18.7055% X 4,498,438 = 841,455 Belk of Lawrenceville, Ga., Inc. 15.8155% X 6,024,825 = 952,856 Belk's Department Store of Lenoir, North Carolina, Incorporated 18.7872% X 6,891,590 = 1,294,737 Belk Department Store of Lincolnton, N.C., Inc. 13.5833% X 7,914,736 = 1,075,082 Belk-Lindsey Stores, Inc. 2.4114% X 76,945,152 = 1,855,455 Belk Stores of Virginia, Inc. .0104% X 129,824,509 = 13,502 Belk of Monroe, Ga. Inc. 18.2361% X 1,961,637 = 357,726 Belk Brothers of Monroe, North Carolina, Incorporated 29.2634% X 16,994,981 = 4,973,309 Belk's Department Store of Mount Airy, North Carolina, Incorporated 3.6471% X 3,686,607 = 134,454 Belk's Department Store of New Bern, N.C., Incorporated 21.7060% X 7,893,721 = 1,713,411 Belk of Newnan, Ga., Inc. 17.6439% X 1,320,331 = 232,958 Hudson-Belk Company 9.8545 X 71,085,804 = 7,005,151 Belk Department Store of Reidsville, N.C., Inc. 12.8705% X 2,024,233 = 260,529 Belk of Lynchburg, Va. Inc. 1.2195% X 7,025,589 = 85,677 Belk's Department Store of Rockingham, N.C., Incorporated 10.4712% X 2,851,585 = 298,595 Belk-Harry Company, Salisbury, N.C. 41.5960% X 9,874,380 = 4,107,347 Belk Department Store of Shelby, N.C., Inc. 10.7402% X 13,263,329 = 1,424,508 Belk Stores of Virginia, Inc. 59.4044% X 92,754,090 = 55,100,010 </TABLE> 18 <PAGE> 1676 <TABLE> <CAPTION> TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk of South Boston, Va. Inc. 1.5448% X 3,958,842 = 61,156 Belk of Spartanburg, S.C., Inc. .2827% X 10,010,255 = 28,299 Belk Realty of Stauton, Va., Inc. .1372% X 3,827,783 = 5,252 Tags Stores, LLC 12.9390% X 15,118,749 = 1,956,215 Belk of Thomaston, Ga., Inc. 10.0048% X 30,307,653 = 3,032,220 Belk of Toccoa, Ga. Inc. 9.4467% X 4,349,964 = 410,928 Belk of Union, S.C., Inc. 44.5000% X 901,776 = 401,290 Belk of Washington, Ga., Inc. 16.5700% X 1,274,815 = 211,237 Belk Department Store of Waynesville, N.C., Inc. 17.2145% X 6,879,640 = 1,184,296 Belk Department Store of Wilkesboro, N.C., Inc. 13.6585% X 3,451,898 = 471,477 Belk of Canton, Ga., Inc. 14.2340% X 2,207,655 = 314,238 Belk Department Store of Winnsboro, S.C., Incorporated 3.1746% X 845,995 = 26,857 Kitchin's of Alabama, Inc. 7.4141% X 3,095,005 = 229,467 Hudson's Department Store, Incorporated 8.0838% X 1,306,752 = 105,635 Howard's Department Store of Columbia, S.C., Inc. 19.7222% X 3,010,794 = 593,795 Kitchin's of Enterprise, Ala, Inc. 6.3559% X 486,221 = 30,904 Kitchin's of Starkville, Mississippi, Inc. 6.0000% X 845,194 = 50,712 Kitchin's of Troy, Alabama, Inc. 5.6723% X 747,359 = 42,392 ------------ Total $173,012,482 ============ Relative Operating Value of Company $ 88,947,105 Relative Operating Value of Other Companies Owned by Company + 173,012,482 ------------ Total Relative Value of Company = $261,959,587 ============ </TABLE> 19 <PAGE> 1677 The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. 26.6148% X $261,959,587 = $ 69,720,020 Belk Finance Company 1.9416% X 261,959,587 = 5,086,208 Matthews-Belk Company .2087% X 261,959,587 = 546,710 Belk Brothers of Monroe, North Carolina, Incorporated .2044% X 261,959,587 = 535,445 Belk's Department Store, Morehead City, N.C., Inc. .2044% X 261,959,587 = 535,445 Belk-Harry Company, Salisbury, N.C. .2044% X 261,959,587 = 535,445 ------------ Total $ 76,959,273 ============ Total Relative Value of Company $261,959,587 Total Relative Value of Company Owned by Other Belk Companies - 76,959,273 ------------ Net Relative Value of Company = $185,000,314 ============ </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $185,000,314 / $1,155,623,145 = 16.0087% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (16.0087% X 60,000,007) / 99,497.5 = 96.5373 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 20 <PAGE> 1678 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR NINE MONTHS ENDED FEBRUARY 1, ENDED NOVEMBER 1, 1997 1997 ----------------- ----------------- <S> <C> <C> COMPANY HISTORICAL Earnings per share from continuing operations(1).......... $ 84.76 $ 8.17 Book value per share(2)................................... 892.07 890.46 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 0.28 Book value per share(4)................................... 12.66 12.79 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 91.63 27.22 Book value per share...................................... 1,222.35 1,234.58 </TABLE> - --------------- (1) Based on 140,888 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997 and the nine-month period ended November 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 140,888 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the periods presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying the New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 21 <PAGE> 1679 SELECTED HISTORICAL FINANCIAL INFORMATION The following selected historical consolidated financial information of the Company presented below under the captions "Selected Statement of Income Data" and "Selected Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended February 1, 1997 are derived from the consolidated financial statements of the Company. The consolidated financial statements as of February 3, 1996 and February 1, 1997 and for each of the years in the three-year period ended February 1, 1997 have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Such consolidated financial statements, and the report thereon, are included elsewhere in this Prospectus Supplement. The selected data presented below for the nine-month periods ended November 2, 1996 and November 1, 1997, and as of November 1, 1997 are derived from the unaudited consolidated financial statements of the Company included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. The information presented below under the caption "Selected Operating Data" is unaudited. <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED ------------------------------------------------------------------------ --------------------------- FEBRUARY 2, FEBRUARY 1, JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1993 1994 1995 1996 1997 1996 1997 ------------ ------------ ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> <C> <C> SELECTED STATEMENT OF INCOME DATA: Revenues............... $181,705,912 $185,278,256 $194,420,976 $194,787,171 $196,795,296 $134,386,195 $141,684,068 Cost of goods sold..... 124,420,607 126,562,578 132,138,069 131,652,075 134,457,290 92,630,087 98,060,058 Depreciation and amortization......... 8,213,244 8,016,463 7,444,592 9,212,217 9,620,419 8,165,218 4,612,765 Income from continuing operations........... 4,240,293 4,319,885 6,816,668 5,608,241 11,941,237 2,683,336 1,151,550 Income (loss) from discontinued operations........... -- -- -- 1,298,344 37,857,535 (2,806,774) -- Net income (loss)...... 4,240,293 5,395,065 6,816,668 4,039,585 49,798,772 (123,438) 1,151,550 Net income (loss) per share(1)............. 30.10 38.29 48.38 28.67 353.46 (0.88) 8.17 Dividends per share.... 8.00 8.00 8.00 10.00 10.00 10.00 10.00 SELECTED BALANCE SHEET DATA: Accounts receivable -- net.................. 32,230,771 30,690,117 30,163,752 29,801,982 34,759,335 31,684,599 33,739,030 Merchandise inventories.......... 35,276,739 36,375,508 32,844,926 39,488,466 38,929,611 45,668,379 50,825,896 Working capital........ 54,509,978 51,324,851 49,756,271 (54,277,903) 48,666,918 (121,034,173) 39,776,329 Total assets........... 185,721,206 181,628,282 177,138,130 277,257,166 283,269,358 367,340,225 293,997,507 Long-term debt......... 91,408,763 78,192,254 66,902,163 55,991,852 77,424,913 77,058,298 72,240,905 Short-term debt........ -- 1,650,000 -- 105,990,739 1,000,000 175,530,268 5,748,830 Capitalized lease obligations.......... 7,302,257 7,015,468 6,716,608 6,405,170 6,080,621 6,163,017 5,828,277 Shareholders' equity... 63,966,454 68,695,916 74,517,602 77,205,413 125,681,609 75,722,660 125,455,250 Book value per share(2)............. 454.02 487.59 528.91 547.99 892.07 537.47 890.46 Weighted average number of shares outstanding.......... 140,888 140,888 140,888 140,888 140,888 140,888 140,888 SELECTED OPERATING DATA: Number of stores at end of period............ 11 12 12 12 11 11 10 Comparable store net revenue increases (decreases).......... 2.1% 4.0% 5.5% (1.6%) 2.6% 1.7% (0.6%) </TABLE> - --------------- (1) Based on the weighted average number of shares of Common Stock outstanding for each period presented. (2) Based on the number of shares of Common Stock outstanding at the end of each period presented. 22 <PAGE> 1680 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the historical consolidated financial condition and results of operations of Belk Brothers Co. and Subsidiaries for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 which should be read in conjunction with the historical consolidated financial statements, including the notes thereto, included elsewhere in this Proxy Statement/Prospectus. GENERAL Acquisitions. During the fiscal year ended February 1, 1997, the Company purchased stock in affiliated companies from several major stockholders for $84.7 million. In November 1995, the Company purchased the stock of Ivey Properties, Inc., a real estate investment trust, for $83.0 million(the "Ivey Acquisition"). The largest holding of Ivey Properties, Inc. was a 50% interest in J.V. Properties, a joint venture that developed SouthPark Mall in Charlotte, North Carolina ("SouthPark"). Discontinued Operations. In November 1996, the Company sold its investment in the company that owned a retail mall to an unrelated third party. Accordingly, the Company's continuing operations for the fiscal years ended February 1, 1997 and February 3, 1996 and the nine-month periods ended November 2, 1996 have been reclassified to report separately the operating results of the discontinued operations. Certain Components of Net Income. Revenues include sales from retail operations and leased departments. Cost of goods sold include cost of merchandise, buying and occupancy expense. Selling, general and administrative expense ("SG&A") includes payroll, advertising, credit and depreciation expense. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship to revenues of certain items in the Company's consolidated statements of income and other pertinent financial data. <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995(A) 1996(A) 1997(A) 1996 1997 ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold....................... 68.0 67.6 68.3 68.9 69.2 Selling, general and administrative expenses............................... 25.9 26.7 25.0 26.9 25.9 Income from operations................... 6.1 5.8 6.7 4.2 4.9 Interest expense, net.................... 1.9 1.6 1.5 1.4 2.3 Income taxes............................. 1.8 1.5 2.2 1.1 0.8 Income from continuing operations........ 3.5 2.9 6.1 2.0 0.8 Discontinued operations.................. 0.0 0.7 19.2 (2.1) 0.0 Net income............................... 3.5 2.1 25.3 (0.1) 0.8 Comparable stores revenues increase (decrease)............................. 5.5 (1.6) 2.6 1.7 (0.6) Number of stores Opened................................. 0 0 0 0 0 Closed................................. 0 0 1 1 1 Total -- end of period................... 12 12 11 11 10 </TABLE> - --------------- (a) The fiscal years ended February 1, 1997 and January 31, 1995 consisted of 52 weeks. The fiscal year ended February 3, 1996 consisted of 368 days. 23 <PAGE> 1681 COMPARISON OF NINE MONTHS ENDED NOVEMBER 1, 1997 AND NOVEMBER 2, 1996 Revenues. The Company's revenues for the nine months ended November 1, 1997 increased 5.4%, or $7.3 million, over the same period in 1996 from $134.4 million to $141.7 million. The increase was attributable to an increase in revenues of $13.0 million at the Greensboro, North Carolina store at Friendly Shopping Center which opened in April, 1997, partially offset by a decrease in revenues of $6.7 million at stores in the same market. Comparable store revenues for the nine months ended November 1, 1997 decreased 0.6% from the nine months ended November 2, 1996. Cost of Goods Sold. As a percentage of revenues, cost of goods sold increased slightly from 68.9% for the nine months ended November 2, 1996 to 69.2% for the nine months ended November 1, 1997. Cost of merchandise increases were experienced due to higher markdowns associated with the relocation of the Greensboro Friendly store. Cost of goods sold increased 5.9%, or $5.4 million from $92.6 million for the nine months ended November 2, 1996 to $98.0 million for the nine months ended November 1, 1997 primarily due to increased revenues. Selling, General and Administrative Expenses. SG&A decreased from 26.9% of revenues for the nine months ended November 2, 1996 to 25.9% of revenues for the nine months ended November 1, 1997. The decrease was attributable primarily to decreases in payroll and depreciation as a percentage of revenues. Interest Expense, Net. Interest expense, net was 2.3% of revenues for the nine months ended November 1, 1997 as compared to 1.4% of revenues for the same period in 1996. The increase, which amounted to $1.4 million, was due to an increase in average borrowings outstanding of $16.4 million. The Company also made payments on Interest Rate Swap Agreements, which contributed to the increase in interest expense, net. Income from continuing operations. Income from continuing operations decreased $1.5 million from $2.7 million, or 2.0% of revenues for the nine months ended November 2, 1996, to $1.2 million, or 0.8% of revenues for the nine months ended November 1, 1997. This decrease is primarily attributable to a loss on investment of $1.4 million. Discontinued Operations. As a result of selling the company that owned SouthPark, the Company recognized an after-tax loss on discontinued operations of $2.8 million for the nine months ended November 2, 1996. Net Income (Loss). Net income increased $1.3 million to 0.8% of revenues for the nine months ended November 1, 1997 compared to (0.1%) of revenues for the nine months ended November 2, 1996. As discussed above, the net loss for the nine months ended November 2, 1996 included an after-tax loss on discontinued operations of $2.8 million. Net income for the nine months ended November 1, 1997 included an increase in income from operations of $1.3 million resulting from a decrease in SG&A of 1.0%, as a percentage of revenues. Net income for the nine months ended November 1, 1997 was also impacted by an increase in interest expense of $1.4 million, a loss on investment of $1.4 million, and equity in loss of unconsolidated entities, net of income taxes, of $0.7 million. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 Revenues. The Company's revenues in fiscal year 1997 increased by 1.0%, or $2.0 million, over fiscal year 1996 from $194.8 million to $196.8 million. On a comparable store basis, revenues increased 2.6% compared to the first 52 weeks of fiscal year 1996. The increase was attributable to an increase in revenues at the Pineville, North Carolina store. These increases were partially offset by decreases experienced by the Greensboro, Carolina Circle Mall store which experienced a decrease in revenues as it discontinued the clearance center operation at that location. Cost of Goods Sold. As a percentage of revenues, cost of goods sold increased from 67.6% in fiscal year 1996 to 68.3% in fiscal year 1997. Cost of merchandise increases were experienced as a result of higher markdowns. Cost of goods sold increased 2.1%, or $2.8 million, from $131.7 million in fiscal year 1996 to $134.5 million in fiscal year 1997 primarily due to an increase in revenues. 24 <PAGE> 1682 Selling, General and Administrative Expenses. SG&A decreased from 26.7% of revenues in fiscal year 1996 to 25.0% of revenues in fiscal year 1997. This decrease, which amounted to $2.7 million, was attributable primarily to decreases in payroll expense realized through efficiencies implemented in the retail department stores and depreciation expense. Interest Expense, Net. Interest expense, net was relatively constant at 1.6% of revenues in fiscal year 1996 and 1.5% of revenues in fiscal year 1997. Interest expense, net was $3.2 million for fiscal year 1996 as compared to $3.0 million for fiscal year 1997. Income Taxes. The effective income tax rate increased to 41.7% in fiscal year 1997 from 35.3% in fiscal year 1996. The income tax rate of 35.3% in fiscal year 1996 differs from the statutory federal income tax rate primarily due to permanent differences related to deferred compensation insurance, a tax benefit related to a prior year, and a correction of the value of deferred tax assets. Income from continuing operations. Income from continuing operations increased $6.3 million from $5.6 million, or 2.9% of revenues in fiscal year 1996, to $11.9 million, or 6.1% of revenues in fiscal year 1997. This increase is primarily attributable to an increase in equity in earnings of unconsolidated entities, net of tax, of $5.8 million due to the purchase of stock of six affiliated entities which are accounted for under the equity method. The largest contribution of equity earnings, which amounted to $2.0 million, was from the purchase of stock in Belk of Virginia, a holding company for 42 acquired Leggett stores. Discontinued Operations. The Company recognized a gain on the disposal of the company that owned J.V. Properties of $37.9 million in fiscal year 1997, which was composed of a $3.6 million after-tax loss on operations and a $41.5 million after-tax gain on disposal of assets. In fiscal year 1996, the after-tax income from J.V. Properties was $1.3 million. Net Income. Net income increased $45.8 million to 25.3% of revenues in fiscal year 1997 compared to 2.1% of revenues in fiscal year 1996. This increase was primarily attributable to the gain on disposal of discontinued operations discussed above. In addition, the Company recorded an increase of $5.8 million in equity in earnings of unconsolidated entities, net of income taxes. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 3, 1996 AND JANUARY 31, 1995 Revenues. The Company's revenues in fiscal year 1996 increased by 0.2%, or $0.4 million, from $194.4 million in fiscal year 1995 to $194.8 million in fiscal year 1996. Adjusting for the additional days in fiscal year 1996, comparable store revenues decreased 1.6%. Very solid revenues increases were experienced by the Pineville, North Carolina store and the Mooresville Festival store. These increases were offset by decreases experienced by other stores in the consolidated group such as the Greensboro, Four Seasons Mall and the Charlotte, Eastland Mall stores which experienced substantial decreases in revenues. Cost of Goods Sold. As a percentage of revenues, cost of goods sold decreased from 68.0% of revenues in fiscal year 1995 to 67.6% of revenues in fiscal year 1996. Cost of goods sold decreased 0.4%, or $0.4 million, from $132.1 million in fiscal year 1995 to $131.7 million in fiscal year 1996. Selling, General and Administrative Expenses. SG&A increased from 25.9% of revenues in fiscal year 1995 to 26.7% of revenues in fiscal year 1996. This increase, which amounted to $1.5 million, was attributable primarily to increases in payroll and credit expense. (Credit expense increased in part due to an increase in Belk proprietary credit card promotions and third party bank fees.) These increases were accompanied by a decrease in finance charge income. Interest Expense, Net. Interest expense, net decreased from 1.9% of revenues in fiscal year 1995 and to 1.6% of revenues in fiscal year 1996. Interest expense, net was $3.7 million for fiscal year 1995 as compared to $3.2 million for fiscal year 1996. This decrease was attributable to a decrease in average outstanding borrowings of $3.6 million. Income Taxes. The effective income tax rate decreased to 35.3% in fiscal year 1996 from 41.6% in fiscal year 1995. The income tax rate of 35.3% in fiscal year 1996 differs from the statutory federal income tax rate primarily due to permanent differences related to deferred compensation insurance, a tax benefit related to a prior year, and a correction of the value of deferred tax assets. 25 <PAGE> 1683 Income from continuing operations. Income from continuing operations decreased $1.2 million from $6.8 million, or 3.5% of revenues in fiscal year 1995, to $5.6 million, or 2.9% of revenues in fiscal year 1996. This decrease is primarily attributable to an increase in SG&A of 0.8% as a percentage of revenues and a decrease in equity in earnings of unconsolidated entities, net of tax of $1.8 million. Net Income. Net income decreased $2.8 million to 2.1% of revenues in fiscal year 1996 compared to 3.5% of revenues in fiscal year 1995. This decrease was a result of a loan prepayment penalty of $2.9 million, net of income tax benefit, charged against income in fiscal year 1996 which was recognized as an extraordinary item in the Consolidated Statements of Income. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenues, operating income, and net income. The highest revenue period for the Company is the fourth quarter which includes the Christmas selling season. A disproportionate amount of the Company's revenues and a substantial amount of the Company's operating and net income are realized during the fourth quarter. If for any reason the Company's revenues were below seasonal norms during the fourth quarter, the Company's annual results of operations could be adversely affected. The Company's inventory levels generally reach their highest in anticipation of increased revenues during these months,. The following table illustrates the seasonality of revenues by quarter as a percentage of the full year for the fiscal years indicated. <TABLE> <CAPTION> 1995 1996 1997 ---- ---- ---- <S> <C> <C> <C> First quarter............................................... 21.9% 21.3% 23.1% Second quarter.............................................. 21.3 22.0 21.4 Third quarter............................................... 23.8 24.0 23.8 Fourth quarter.............................................. 33.0 32.7 31.7 </TABLE> The Company's quarterly results of operations could also fluctuate significantly as a result of a variety of factors, including the timing of new store openings and remodelings. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash on hand, cash flow from operations, and borrowings under credit facilities. During the nine months ended November 1, 1997, net cash provided by operations was $1.2 million, compared to net cash used by operations of $4.0 million during the same period in 1996. This increase is primarily attributable to an increase in accounts payables and accrued expenses of $7.3 million. In fiscal year 1997, the Company had sufficient cash flows from operations and credit facilities to fund its working capital needs, capital expenditures, and equity purchases. Net cash provided by operations was $17.6 million, $6.0 million, and $17.9 million for the 1995, 1996, and 1997 fiscal years, respectively. The decrease in cash flow in fiscal year 1996 was primarily attributable to reduced net income and an additional investment in merchandise inventory for the Pineville, North Carolina store needed to support revenues growth. The increase in cash flow in fiscal year 1997 is primarily attributable to an increase in income from continuing operations and payables to affiliates, slightly offset by an increase in accounts receivable from customers. Investing activities included capital expenditures, primarily for new, relocated and remodeled stores; purchases and sales of equity investments; and the purchases and sales of property and equipment related to store openings and closings. The Company acquired the stock of Ivey Properties, Inc. in fiscal year 1996 for $83.0 million and acquired stock in affiliated companies, including Belk of Virginia, in fiscal year 1997 for $84.7 million. Capital expenditures, primarily for new and remodeled stores, amounted to $11.0 million in the first nine months of fiscal 1998 and $2.2 million in the comparable period in fiscal year 1997. Capital expenditures amounted to $3.7 million, $3.4 million, and $3.8 million for the 1995, 1996, and 1997 fiscal years, respectively. In fiscal year 1996, the Mooresville Festival store was expanded. In fiscal year 1997, the Greensboro Friendly store was relocated with an additional 98,000 square feet in its new locale. The Company operated 12, 12, and 26 <PAGE> 1684 11 department stores, respectively for the 1995, 1996, and 1997 fiscal years. Stores are strategically opened and closed to allow the Company to focus on its most productive and profitable markets. Financing activities included payments or additional borrowings on credit facilities. The Company's total indebtedness at November 1, 1997 was $83.8 million, comprised of $16.0 million of short-term borrowings and current installments of long-term debt and capital lease obligations, and $67.8 million of long-term debt and capital lease obligations. Of the $83.8 million of total indebtedness, $5.8 million represents capital lease obligations, $5.7 million was variable rate debt based on the secondary CD rate, $38.1 million is variable rate debt based on LIBOR, and $34.2 million was fixed-rate. The Company has entered into interest rate swap agreements with various financial institutions to manage the exposure to changes in interest rates on its LIBOR based indebtedness. IMPACT OF INFLATION While it is difficult to determine the precise effects of inflation, Management does not believe inflation had a material impact on the consolidated financial statements for the periods presented. BUSINESS OF THE COMPANY General. The Company owns, either directly or indirectly, (i) 100% of the capital stock of Belk Charlotte, Inc., a North Carolina corporation ("Belk Charlotte"), Belk Department Store of Greensboro, N.C., Inc., a North Carolina corporation ("Belk Greensboro"), Belk Brothers Properties, Inc., a North Carolina corporation ("Belk Brothers Properties") and Belk's Department Store of Rock Hill, S.C., Incorporated, a South Carolina corporation ("Belk Rock Hill"), (ii) 56% of the common stock of Belk of Virginia, Inc., a Virginia corporation ("Belk Virginia"), (iii) approximately 33% of BSS, and (iv) a 100% interest in J.V. Properties, a North Carolina partnership ("J.V. Properties"). Belk Charlotte operates six retail department stores in the following locations in North Carolina: Eastland Mall and SouthPark Mall in Charlotte; Carolina Mall in Concord; Mooresville Festival in Mooresville; Carolina Place Mall in Pineville; Signal Hill Mall in Statesville; and a Belk Express Store in downtown Charlotte. The department stores operated by Belk Charlotte generally operate in a manner consistent with the operations of the Belk Companies' retail department store business, except that the Belk Express store sells only a limited line of cosmetics and hosiery and does not carry the full lines of merchandise carried by traditional Belk stores. Specific competitors in Belk Charlotte's markets include Dillard, Sears, Hecht's and Penney. Belk Charlotte operates the Pennell group office in Charlotte, North Carolina. The Pennell group office provides buying, advertising, accounting, personnel and other services to the stores in the Pennell group area. Belk Charlotte also operates a distribution center in Charlotte, North Carolina, from which Belk Charlotte receives, marks and distributes goods to the stores in the Pennell group area. Belk Charlotte's stores are managed out of the Pennell group office in Charlotte, North Carolina. In addition, Belk Charlotte owns real property consisting of 1.94 acres that it leases to a Hollywood Video store in Charlotte, North Carolina. The lease agreement was signed in 1996 and has a term of 15 years. The lease agreement provides for initial annual payments of $123,000. Belk Charlotte also owns 100% of the common stock of Belk Rock Hill. Belk Greensboro operates two retail department stores in Four Seasons Towne Centre and Friendly Shopping Center in Greensboro, North Carolina. The department stores operated by Belk Greensboro generally operate in a manner consistent with the operations of the Belk Companies' retail department store business. Specific competitors in Belk Greensboro's market include Dillard, Sears, Hecht's and Penney. Belk Greensboro operates the Huffstetler group office which provides buying, advertising, accounting, personnel and other services to stores in the Huffstetler group area. In addition, Belk Greensboro operates a distribution center in Greensboro, North Carolina which provides receiving, marking and distribution services to stores in the Huffstetler group area. These stores are managed out of the Huffstetler group office in Greensboro, North Carolina. 27 <PAGE> 1685 Belk Greensboro owns real property consisting of 15.4 acres at the Carolina Circle Mall in Greensboro, North Carolina. Belk Greensboro formerly operated a retail department store in that location; however, the store was closed in 1997. A portion of the property at Carolina Circle Mall is currently being leased to the United States Postal Service for the operation of a mail sorting facility. The lease was signed in 1994 and has a term of 10 years. The lease provides for annual payments of $191,400. The Huffstetler group office also operates in a portion of the former Carolina Circle store building. Belk Brothers Properties does not operate any department stores. Belk Brothers Properties owns (i) the building in Charlotte, North Carolina in which BSS' offices are located, (ii) a number of parking lots located in Charlotte, North Carolina and (iii) a 99% partnership interest in J.V. Properties. The lease agreement with BSS for its offices was signed in 1992 and expires in 2013. The lease agreement provides for monthly payments of $348,576. Belk Rock Hill operates one retail department store at the Rock Hill Galleria in Rock Hill, South Carolina. The department store operated by Belk Rock Hill generally operates in a manner consistent with the operations of the Belk Companies' retail department store business. Specific competitors within Belk Rock Hill's market include Wal-Mart, Penney and Sears. Belk Rock Hill also has a 25% limited partnership interest in the Rock Hill Zamias Limited Partnership which was formed for the purpose of developing the Galleria in Rock Hill. The store is managed out of the Pennell group office in Charlotte, North Carolina. J.V. Properties holds stock in other Belk Companies and Surviving Belk Subsidiaries. J.V. Properties owns stock in the following corporations: <TABLE> <CAPTION> PERCENTAGE OF COMMON STOCK CORPORATION OWNED - ----------- ------------- <S> <C> Belk Brothers of Monroe, N.C., Incorporated................. 29.2634% Belk of Union, S.C., Inc.................................... 44.5000 Matthews-Belk Company....................................... 15.0117 Belk-Harry Company-Salisbury, N.C........................... 41.5960 Hudson-Belk Company......................................... 9.8545 Belk's Department Store of Rockingham, N.C., Incorporated... 10.4712 Belk's Department Store of Albemarle, N.C., Incorporated.... 49.4697 Gallant-Belk Company........................................ 2.5109 Belk Department Store of Lincolnton, N.C., Inc.............. 13.5833 Belk-Beck Company of Burlington, N.C., Inc.................. 32.2959 Belk Department Store of Hickory, N.C., Inc................. 22.8608 Belk-Beck Co. of High Point, N.C., Inc...................... 24.8023 Belk Department Store of Reidsville, N.C., Inc.............. 12.8705 Belk Department Store of Clinton, N.C., Inc................. 10.4372 Belk Department Store of Charleston, S.C., Inc.............. 2.2824 Belk's Department Store of Mount Airy, N.C., Incorporated... 3.6471 Belk Department Store of Wilkesboro, N.C., Inc.............. 13.6585 Belk's Department Store of Lenoir, N.C., Incorporated....... 18.7872 Belk's Department Store of Winnsboro, S.C., Incorporated.... 3.1746 Belk's Department Store of Lancaster, S.C., Inc............. 17.7617 Belk-Simpson Company, Greenville, S.C....................... 2.6877 Belk's Department Store of Asheville, N.C., Incorporated.... 11.9829 Belk's Department Store of Gaffney, S.C., Incorporated...... 7.9582 Belk-Matthews Company....................................... 18.2642 Belk of Hartwell, Ga., Inc.................................. 15.1667 Belk Department Store of Shelby, N.C., Inc.................. 10.7402 Belk's Department Store of New Bern, N.C., Incorporated..... 21.7060 Belk's Department Store of Laurens, S.C., Incorporated...... 18.7055 Belk of Monroe, Ga., Inc.................................... 18.2361 </TABLE> 28 <PAGE> 1686 <TABLE> <CAPTION> PERCENTAGE OF COMMON STOCK CORPORATION OWNED - ----------- ------------- <S> <C> Belk of Canton, Ga., Inc.................................... 14.2340 Belk of LaGrange, Ga., Inc.................................. 16.1591 Belk-Simpson Company of Corbin, Ky., Incorporated........... 10.9524 Belk's Department Store of Conway, S.C., Incorporated....... 9.6875 Belk's Department Store of Camden, S.C., Incorporated....... 11.4193 Belk of Spartanburg, S.C., Inc.............................. .2827 Belk Department Store of Forest City, N.C., Inc............. .3829 Belk's Department Store of Hartsville, S.C., Incorporated... 11.9212 Belk-Matthews Company of Cherryville, N.C., Incorporated.... 11.6831 Hudson's Department Store, Incorporated..................... 8.0838 Belk's Department Store of Chesterfield, S.C., Incorporated.............................................. 5.8697 Belk of Toccoa, Ga., Inc.................................... 9.4467 Belk Department Store of Ahoskie, N.C., Inc................. 23.6576 Belk Department Store of Elkin, N.C., Inc................... 12.8289 Belk Department Store of Greenville, N.C., Inc.............. 8.5495 Belk Department Store of Waynesville, N.C., Inc............. 17.8145 Howard's Department Store of Columbia, S.C., Inc............ 19.7222 Belk-Simpson Company of Hendersonville, N.C., Incorporated.............................................. 17.2656 Belk of Cornelia, Ga., Inc.................................. 16.3484 Belk of Newnan, Ga., Inc.................................... 17.6439 Belk of Washington, Ga., Inc................................ 16.5700 Belk of Dalton, Ga., Inc.................................... 9.4967 Belk Department Store of Eden, N.C., Inc.................... 5.0048 Belk-Simpson Company, Incorporated of Beaufort, S.C......... 16.3492 Belk of Lawrenceville, Ga., Inc............................. 15.9155 Belk of Covington, Ga., Inc................................. 11.9048 Belk of Miss., Inc.......................................... .3672 Belk's Department Store, Incorporated of Aiken, S.C......... 16.4444 Belk Department Store of Edenton, N.C., Inc................. 6.9884 Belk-Simpson Realty Company................................. 16.7000 Belk Enterprises Inc........................................ 9.0466 Belk's Department Store of Jacksonville, N.C., Inc.......... 5.1760 Parks-Belk Company of Clarksville, Tenn..................... 3.7774 Belk of Thomaston, Ga., Inc................................. 10.0048 Belk-Lindsey Stores, Inc.................................... 2.4114 Belk's Department Store of Cartersville, Ga., Incorporated.............................................. 4.7529 Kitchin's of Alabama, Inc................................... 7.4141 Kitchin's of Troy, Alabama, Inc............................. 5.6723 Kitchin's of Starkville, Miss., Inc......................... 6.0000 Kitchin's of Enterprise, Ala., Inc.......................... 6.3559 Belk of Virginia, Inc....................................... 8.2978 Belk of Danville, Va., Inc.................................. 18.2516 Belk of South Boston, Va., Inc.............................. 1.5648 Belk of Lynchburg, Va., Inc................................. 1.2195 Belk Realty of Staunton, Va., Inc........................... .1372 Belk Stores of Virginia, Inc................................ .0104 </TABLE> 29 <PAGE> 1687 Belk of Virginia owns stock in the following corporations: <TABLE> <CAPTION> PERCENTAGE OF COMMON STOCK CORPORATION OWNED - ----------- ------------- <S> <C> Belk of South Boston, Va., Inc.............................. 89.5% Belk of Lynchburg, Va., Inc................................. 93.9 Belk Outlet Center, Lynchburg, Va........................... 94.2 Belk of Roanoke, Va......................................... 94.6 Belk Realty of Radford, Va.................................. 95.9 Belk Realty of Staunton, Va................................. 96.4 Belk of Lawrenceville, Va., Inc............................. 90.6 Belk Stores of Virginia, Inc................................ 92.2 </TABLE> BSS provides various administrative services to the Belk Companies. The services provided include: accounts payable and payroll services, merchandise buying, sales promotion, real estate management, store planning, employee benefits, training, loss prevention, management information services and legal, tax and accounting services. Facilities. Belk Charlotte operates six retail department stores, of which one is leased under a long-term lease and five are owned by the Company. The store lease has a termination date of 2001. The floor area of the leased building is 101,000 square feet. The owned stores range in size from 56,000 to 284,000 square feet. The Company believes its facilities are adequate to meet its current needs. Belk Charlotte also operates a Belk Express Store which contains 2,000 square feet of floor area. The Belk Express facility is leased under a lease expiring in 1999. The Company has no lease renewal options remaining; however, the Company believes that renewal options at market rates will be available. Belk Greensboro leases both of its store buildings. The leases have termination dates of 2007 and 2010. The floor area of the leased buildings is 140,000 and 220,000 square feet. The Company believes these facilities are adequate to meet its current needs. Belk Rock Hill leases its store building, which contains approximately 89,000 square feet of floor area. The current term of the lease expires in 2011. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's markets include Penney, Dillard, Hecht's, Sears and Wal-Mart. Legal Proceedings. Neither the Company nor any of its subsidiaries is currently a party to any material litigation, nor are they currently aware of any pending or threatened litigation that could have a material adverse effect on the business, financial condition or results of operations of the Company and its subsidiaries taken as a whole. 30 <PAGE> 1688 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)........................................ 65,478.50 43.7% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(d)(f)................................................. 51,308.25 33.7% H. W. McKay Belk (Director and Executive Officer) (b)(d)(f)................................................. 51,308.25 33.7% John R. Belk (Director and Executive Officer) (b)(d)(f)..... 51,308.25 33.7% Sarah Belk Gambrell (e)..................................... 16,422.00 11.7% David Belk Cannon (Director) (h)............................ 10,260.00 7.3% James K. Glenn, Jr. (Director) (g).......................... 8,565.00 6.1% Leroy Robinson (Director) (b)(d)............................ 7,515.00 5.3% Katherine McKay Belk (b)(d)................................. 9,378.00 6.7% Katherine Belk Morris (b)(d)................................ 9,864.25 7.0% Belk Enterprises, Inc....................................... 37,497 26.6% James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox.................................................... 7,526 5.3% NationsBank, N.A. (i)(j).................................... 8,583 6.1% All Directors and Executive Officers as a group (7 persons).................................................. 91,511.25 62.2% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P.O. Box 2736, Winston-Salem, N.C. 27102; Belk Enterprises, Inc. and James K. Glenn, Trustee under will of Daisy Belk Mattox -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 2,058 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 4,567 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Represented by 154.5 shares of Mary Claudia Belk Irrevocable Trust dated 1/4/94. Claudia W. Belk, Trustee, is John M. Belk's wife. (d) Includes 2,948 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (e) Includes 6,342 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by 31 <PAGE> 1689 John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (f) Includes 37,497 shares held by Belk Enterprises, Inc., 288 shares held by Belk Brothers of Monroe, North Carolina, Incorporated., 288 shares held by Belk-Harry Company, 288 shares held by Belk's Department Store of Morehead City, N.C., Inc., 2,735.5 shares held by Belk Finance Company and 294 shares held by Matthews-Belk Company, which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under the authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (g) Includes 7,526 shares held by James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox, 310 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al. and 621 shares held by John Belk Stevens Trust U/W ITEM III, Section B f/b/o Mary S. Whelchel. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (h) Includes 2,412 shares held by Residuary Trust U/W Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (i) Includes 614 shares held by NationsBank as Trustee for the Robert L. Doughton II Revocable Trust dated 3/25/97, 2,008 shares held by Sara Dew Misner and North Carolina National Bank, Co-Trustees for Daisy Doughton Lange U/A dated November 5, 1965, 94 shares held by North Carolina National Bank, successor trustee U/W J. Norton Doughton for Virginia D.P. Doughton, 340 shares held by North Carolina National Bank and John L. Green, Jr., Co-Trustees U/A Mike Belk Hudson dated 8/18/65 -- Mike Belk Hudson, Grantor, 340 shares held by Amos J. Cummings, John L. Green, Jr. and North Carolina National Bank, Co-Trustees U/A 8/18/65 -- Mike Belk Hudson, Grantor, 2,403 shares held by J. L. Green, Jr. and N.C. National Bank, Trustees U/A 7/9/65 -- Sadie Belk Cummings, Grantor. NationsBank has sole voting and investing power with respect to such shares. (j) Includes 2,784 shares held by Daisy Doughton Lange and North Carolina National Bank, Trustees for Robert L. Doughton, II under Agreement dated July 21, 1965. The named Trustees have voting and investment power with respect to such shares. 32 <PAGE> 1690 INDEX TO HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Report of KPMG Peat Marwick LLP, Independent Auditors....... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statements of Shareholders' Equity............. F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7 </TABLE> F-1 <PAGE> 1691 INDEPENDENT AUDITORS' REPORT The Board of Directors Belk Brothers Co., and Subsidiaries We have audited the accompanying consolidated balance sheets of Belk Brothers Co., and Subsidiaries as of February 3, 1996 and February 1, 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended February 1, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 financial position of Belk Brothers Co., and Subsidiaries at February 3, 1996 and February 1, 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended February 1, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Charlotte, North Carolina April 25, 1997 F-2 <PAGE> 1692 BELK BROTHERS CO., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ------------ ------------ ------------ (UNAUDITED) <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents.......................... $ 6,584,769 $ 14,783,850 $ 3,209,435 Accounts receivable, net........................... 29,801,982 34,759,335 33,739,030 Merchandise inventory.............................. 39,488,466 38,929,611 50,825,896 Receivables from affiliates........................ 1,598,173 2,715,623 7,327,507 Prepaid income taxes............................... 3,992 1,284,091 4,498,445 Deferred income taxes.............................. 1,050,915 801,597 801,597 Prepaid expenses and other current assets.......... 2,726,350 2,072,457 1,419,849 ------------ ------------ ------------ Total current assets................................. 81,254,647 95,346,564 101,821,759 Deferred income taxes................................ 101,912 -- -- Investments.......................................... 1,973,818 63,890,467 62,587,502 Investments in unconsolidated entities............... 3,598,369 39,838,916 38,848,805 Property and equipment, net.......................... 175,808,595 82,509,925 88,832,950 Intangible assets, net............................... 10,386,174 -- -- Other assets......................................... 4,133,651 1,683,486 1,906,491 ------------ ------------ ------------ Total assets......................................... $277,257,166 $283,269,358 $293,997,507 ============ ============ ============ LIABILITIES, DEFERRED INCOME AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable................................... $ 12,365,388 $ 12,726,612 $ 20,046,473 Accrued expenses................................... 4,988,672 5,228,711 5,226,607 Payables to affiliates............................. 7,958,567 17,460,521 20,715,883 Accrued income taxes............................... 272,768 -- -- Lines of credit and notes payable.................. 105,990,739 1,000,000 5,748,830 Current installments of long-term debt and capital lease obligations............................... 3,956,416 10,263,802 10,307,637 ------------ ------------ ------------ Total current liabilities............................ 135,532,550 46,679,646 62,045,430 Deferred income taxes................................ -- 31,826,969 32,772,620 Long-term debt and capital lease obligations, excluding current installments..................... 58,440,606 73,241,732 67,761,545 Other liabilities.................................... 3,202,667 3,274,405 3,532,665 ------------ ------------ ------------ Total liabilities.................................... 197,175,823 155,022,752 166,112,260 ------------ ------------ ------------ Deferred income...................................... 2,875,930 2,564,997 2,429,997 ------------ ------------ ------------ Shareholders' equity: Common stock, $100 par value; authorized, issued and outstanding 140,888 shares.................. 14,088,800 14,088,800 14,088,800 Retained earnings.................................. 62,927,385 111,317,277 111,059,947 Net unrealized gains on investments................ 189,228 275,532 306,503 ------------ ------------ ------------ Total shareholders' equity........................... 77,205,413 125,681,609 125,455,250 ------------ ------------ ------------ Total liabilities, deferred income and shareholders' equity............................................. $277,257,166 $283,269,358 $293,997,507 ============ ============ ============ </TABLE> See accompanying notes to consolidated financial statements. F-3 <PAGE> 1693 BELK BROTHERS CO., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> YEAR ENDED NINE MONTHS ENDED ------------------------------------------ --------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ------------ ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Revenues............................. $194,420,976 $194,787,171 $196,795,296 $134,386,195 $141,684,068 Cost of goods sold (including occupancy and buying expenses)..... 132,138,069 131,652,075 134,457,290 92,630,087 98,060,058 Selling, general and administrative expenses........................... 50,381,691 51,927,826 49,186,729 36,131,273 36,752,081 ------------ ------------ ------------ ------------ ------------ Income from operations............... 11,901,216 11,207,270 13,151,277 5,624,835 6,871,929 Interest expense, net................ (3,683,139) (3,168,570) (3,008,501) (1,917,300) (3,292,483) Rental operations with affiliate, net................................ (103,549) (83,367) (44,710) (41,103) 5,992 Loss on investment................... -- -- -- -- (1,350,442) Other income, net.................... 144,954 385,827 50,811 276,582 757,890 ------------ ------------ ------------ ------------ ------------ Income from continuing operations before income taxes and equity in earnings of unconsolidated entities........................... 8,259,482 8,341,160 10,148,877 3,943,014 2,992,886 Income taxes......................... 3,434,887 2,941,953 4,233,752 1,537,000 1,167,000 ------------ ------------ ------------ ------------ ------------ Income from continuing operations before equity in earnings of unconsolidated entities............ 4,824,595 5,399,207 5,915,125 2,406,014 1,825,886 Equity in earnings (loss) of unconsolidated entities, net of income taxes....................... 1,992,073 209,034 6,026,112 277,322 (674,336) ------------ ------------ ------------ ------------ ------------ Income from continuing operations.... 6,816,668 5,608,241 11,941,237 2,683,336 1,151,550 Discontinued operations: Income (loss) from rental operations disposed of, net of income tax benefit (expense) of $(834,000) in 1996 and $2,308,000 in 1997.......................... -- 1,298,344 (3,608,986) (2,806,774) -- Gain on disposal of rental operations, net of income taxes of $29,897,000................... -- -- 41,466,521 -- -- ------------ ------------ ------------ ------------ ------------ Income (loss) before extraordinary item............................... 6,816,668 6,906,585 49,798,772 (123,438) 1,151,550 Extraordinary item -- loan prepayment penalty, net of income tax benefit of $1,833,000...................... -- (2,867,000) -- -- -- ------------ ------------ ------------ ------------ ------------ Net income (loss).................... $ 6,816,668 $ 4,039,585 $ 49,798,772 $ (123,438) $ 1,151,550 ============ ============ ============ ============ ============ Earnings (loss) per share: Income from continuing operations before extraordinary items......... $ 48.38 $ 39.81 $ 84.76 $ 19.04 $ 8.17 Discontinued operations.............. -- 9.21 268.70 (19.92) -- Extraordinary items.................. -- (20.35) -- -- -- ------------ ------------ ------------ ------------ ------------ Net income (loss).................... $ 48.38 $ 28.67 $ 353.46 $ (0.88) $ 8.17 ============ ============ ============ ============ ============ Weighted average shares.............. 140,088 140,088 140,088 140,088 140,088 ============ ============ ============ ============ ============ </TABLE> See accompanying notes to combined financial statements. F-4 <PAGE> 1694 BELK BROTHERS CO., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY <TABLE> <CAPTION> NET UNREALIZED COMMON RETAINED GAINS ON STOCK EARNINGS INVESTMENTS TOTAL ----------- ------------ ----------- ------------ <S> <C> <C> <C> <C> Balance at February 1, 1994................. $14,088,800 $ 54,607,116 $ -- $ 68,695,916 Unrealized gains on investments, net of income taxes.............................. -- -- 132,122 132,122 Cash dividends.............................. -- (1,127,104) -- (1,127,104) Net income.................................. -- 6,816,668 -- 6,816,668 ----------- ------------ -------- ------------ Balance at January 31, 1995................. 14,088,800 60,296,680 132,122 74,517,602 Unrealized gains on investments, net of income taxes.............................. -- -- 57,106 57,106 Cash dividends.............................. -- (1,408,880) -- (1,408,880) Net income.................................. -- 4,039,585 -- 4,039,585 ----------- ------------ -------- ------------ Balance at February 3, 1996................. 14,088,800 62,927,385 189,228 77,205,413 Unrealized gains on investments, net of income taxes.............................. -- -- 86,304 86,304 Cash dividends.............................. -- (1,408,880) -- (1,408,880) Net income.................................. -- 49,798,772 -- 49,798,772 ----------- ------------ -------- ------------ Balance at February 1, 1997................. 14,088,800 111,317,277 275,532 125,681,609 Unrealized gains on investments, net of income taxes (Unaudited).................. -- -- 30,971 30,971 Cash dividends (Unaudited).................. -- (1,408,880) -- (1,408,880) Net income (Unaudited)...................... -- 1,151,550 -- 1,151,550 ----------- ------------ -------- ------------ Balance at November 1, 1997................. $14,088,800 $111,059,947 $306,503 $125,455,250 =========== ============ ======== ============ </TABLE> See accompanying notes to combined financial statements. F-5 <PAGE> 1695 BELK BROTHERS CO., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> YEAR ENDED NINE MONTHS ENDED ----------------------------------------- --------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Cash flows from operating activities: Net income (loss)............................. $ 6,816,668 $ 4,039,585 $ 49,798,772 $ (123,438) $ 1,151,550 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Deferred income taxes......................... (765,575) (855,495) 2,534,989 501,955 925,892 Deferred income............................... 100,215 329,135 (180,000) (147,595) (135,000) Depreciation and amortization................. 7,444,592 9,212,217 9,620,419 8,165,218 4,612,765 Write-off of long-term debt premium........... -- (697,306) -- -- -- Loss (gain) on disposal of rental operations, net......................................... -- -- (41,466,521) -- -- Loss (gain) on sale of property and equipment................................... (8,830) 89,693 103,044 87,179 31,694 Gain on sale of investments................... 20,095 (79,142) (7,230) -- 2,265 Loss (gain) on investment..................... -- -- -- -- 1,350,442 Equity in loss (earnings) of unconsolidated entities.................................... (1,992,073) (1,414,762) (6,026,112) (277,322) 674,336 (Increase) decrease in: Accounts receivable, net.................... 526,365 513,299 (5,280,783) (1,882,617) 1,020,305 Merchandise inventory....................... 3,530,582 (3,211,054) 558,855 (7,001,944) (11,896,285) Receivables from affiliates................. (1,431,600) 1,400,537 (1,117,450) (1,755,564) (4,611,884) Prepaid income taxes........................ -- (1,589,335) (3,733,583) (3,214,354) Prepaid expenses............................ (22,948) (1,595,645) 90,861 47,486 429,603 Increase (decrease) in: Accounts payable and accrued expenses....... 77,324 (1,664,550) 1,544,948 2,565,153 7,317,757 Payables to affiliates...................... 3,853,317 703,970 9,501,954 (156,308) 3,255,362 Accrued income taxes........................ (900,557) (1,489,905) (272,768) (272,768) -- Other liabilities........................... 310,997 803,686 71,738 35,539 258,260 ----------- ------------ ------------ ------------ ------------ Net cash provided (used) by operating activities.................................... 17,558,572 6,084,263 17,885,381 (3,948,609) 1,172,708 ----------- ------------ ------------ ------------ ------------ Cash flows from investing activities: Distributions received from real estate partnership................................. -- -- 3,375,000 875,000 -- Purchase of the net assets of Ivey Properties, Inc., net of cash acquired.................. -- (82,953,737) -- -- -- Purchases of property and equipment........... (3,708,715) (3,355,368) (3,790,511) (2,235,263) (10,968,728) Proceeds from sale of note receivable......... -- -- 1,097,974 1,097,974 -- Proceeds from sale of property and equipment................................... 389,979 2,378 3,406,448 4,400,000 1,244 Proceeds from sale of investments............. 116,138 165,973 7,230 -- 988 Other changes in investments.................. 2,095,384 1,048,479 (1,856,872) 117,528 315,775 Purchase of stock in affiliated companies..... -- -- (84,718,899) (84,718,349) -- ----------- ------------ ------------ ------------ ------------ Net cash used by investing activities........... (1,107,214) (85,092,275) (82,479,630) (80,463,110) (10,650,721) ----------- ------------ ------------ ------------ ------------ Cash flows from financing activities: Proceeds from notes payable................... $ -- $104,840,739 $ 92,500,000 $ 59,897,500 $ -- Payments on notes payable..................... (1,650,000) -- (30,022,739) -- (330,115) Net proceeds from (payments on) lines of credit -- 1,150,000 (150,000) 3,350,000 4,748,830 Proceeds from issuance of long-term debt -- -- 45,303,000 45,303,000 -- Principal payments on long-term debt and capital lease obligations................... (11,588,951) (28,991,126) (33,428,051) (24,478,707) (5,106,237) Dividends paid................................ (1,127,104) (1,408,880) (1,408,880) (1,408,880) (1,408,880) ----------- ------------ ------------ ------------ ------------ Net cash provided (used) by financing activities.................................... (14,366,055) 75,590,733 72,793,330 82,662,913 (2,096,402) ----------- ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents................................... 2,085,303 (3,417,279) 8,199,081 (1,748,806) (11,574,415) Cash and cash equivalents at beginning of period........................................ 7,916,745 10,002,048 6,584,769 6,584,769 14,783,850 ----------- ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period...... $10,002,048 $ 6,584,769 $ 14,783,850 $ 4,835,963 $ 3,209,435 =========== ============ ============ ============ ============ Supplemental disclosures of cash flow information: Interest paid................................. $ 7,275,723 $ 7,802,563 $ 15,645,505 $ 8,082,461 $ 6,480,253 Income taxes paid 5,723,802 5,109,818 3,056,367 2,867,267 2,573,387 Supplemental information regarding noncash investing and financing activities: Decrease in assets and liabilities due to sale of rental operations........................ $ -- $ -- $167,318,000 $ -- $ -- Increase in investments and notes payable..... $ -- $ -- 9,233,563 6,292,029 $ -- </TABLE> See accompanying notes to combined financial statements. F-6 <PAGE> 1696 BELK BROTHERS CO., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES COMPANY OPERATIONS The consolidated financial statements include the accounts of Belk Brothers Company and its wholly owned subsidiaries (hereafter referred to as the "Company"). The wholly owned subsidiaries are: Belk Charlotte, Inc. Belk Department Store of Greensboro, N.C., Inc. Belk Brothers Properties, Inc. Belk Department Store of Rock Hill, S.C., Incorporated J.V. Properties The Company operates retail department stores in North and South Carolina. FISCAL YEAR Starting fiscal year 1996, the Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1996 and 1997 ended on February 3, 1996 and February 1, 1997, and included 368 and 365 days, respectively. Fiscal year 1995 ended on Tuesday, January 31, 1995 and included 364 days. INTERIM FINANCIAL STATEMENTS The consolidated financial statements as of and for the periods ended November 2, 1996 and November 1, 1997 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (which are of normal recurring nature) necessary to present fairly the financial position and results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations for a full fiscal year. REVENUES Revenues include sales from retail operations and leased departments, net of returns. Revenues from leased departments amounted to approximately, $9,670,000, $10,343,000 and $11,746,000 in fiscal years 1995, 1996 and 1997, respectively. COST OF GOODS SOLD Cost of goods sold includes occupancy and buying expenses. Occupancy expenses include rent, utilities and real estate taxes. Buying expenses include payroll and travel expenses associated with the buying function. MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market as determined by the retail inventory method. FINANCE CHARGES Selling, general and administrative expenses in the consolidated statements of operations are reduced by finance charge revenue arising from customer accounts receivable. Finance charge revenue amounted to approximately $3,752,000, $3,416,000 and $3,641,000 in fiscal years 1995, 1996 and 1997, respectively. F-7 <PAGE> 1697 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PROPERTY AND EQUIPMENT, NET Property and equipment owned by the Company are stated at cost less accumulated depreciation. Depreciation and amortization are provided utilizing straight-line and various accelerated methods over the shorter of estimated asset lives or related lease terms. Property and equipment leased by the Company under capital leases are stated at an amount equal to the present value of the minimum lease payments less accumulated amortization. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement bases and the respective tax bases of the assets and liabilities and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. PRE-OPENING COSTS Store pre-opening costs are expensed as incurred. CASH EQUIVALENTS Cash equivalents include liquid investments with an original maturity of 90 days or less. ADVERTISING Advertising costs are expensed as incurred and amounted to $5,779,918, $5,917,825 and $5,969,263 in fiscal years 1995, 1996 and 1997, respectively. DERIVATIVE FINANCIAL INSTRUMENTS The Company utilizes various derivative financial instruments (interest rate swap agreements) to manage the interest rate risk associated with its borrowings. The counterparties to these instruments are major financial institutions. These agreements are used to reduce the potential impact of increases in interest rates on variable rate long-term debt. The differential to be paid or received is accrued as interest rates change and recognized as an adjustment to interest expense. The fair values of the swap agreements are not recognized in the combined financial statements. (2) ACCOUNTS RECEIVABLE, NET Customer receivables arise primarily under open-end revolving credit accounts used to finance purchases of merchandise from the Company. These accounts have various billing and payment structures, including varying minimum payment levels and finance charge rates. Installments of deferred payment accounts receivable maturing after one year are included in current assets in accordance with industry practice. The Company provides an allowance for doubtful accounts which is determined based on a number of factors, including the risk characteristics of the portfolio, historical charge-off patterns, and management judgment. F-8 <PAGE> 1698 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Accounts receivable, net consists of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> Customer receivables............................ $28,907,850 $33,016,231 $33,611,063 Other........................................... 1,351,118 2,284,880 773,827 Less allowance for doubtful accounts............ (456,986) (541,776) (645,860) ----------- ----------- ----------- Accounts receivable, net........................ $29,801,982 $34,759,335 $33,739,030 =========== =========== =========== </TABLE> Change in allowance for doubtful accounts are as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Balance, beginning of period... $ 419,221 $ 439,121 $ 456,986 $ 456,986 $ 541,776 Charged to expense............. 488,629 504,762 740,853 448,208 882,713 Net uncollectible balances written off.................. (468,729) (486,897) (656,063) (448,208) (778,629) --------- --------- --------- --------- --------- Balance, end of period......... $ 439,121 $ 456,986 $ 541,776 $ 456,986 $ 645,860 ========= ========= ========= ========= ========= </TABLE> (3) INVESTMENTS IN UNCONSOLIDATED ENTITIES The Company's investments in the following unconsolidated entities include the unamortized excess of the Company's investment over its equity in the investments' net assets, if applicable. The excess was $1,865,709, at February 1, 1997, and is being amortized on a straight-line basis over a period of 15 years. The investments in unconsolidated entities and percentage owned are: <TABLE> <S> <C> Belk Department Store of Ahoskie, N.C., Inc................. 23.7% Belk's Department Store of Albemarle, North Carolina, Incorporated.............................................. 43.5 Belk-Beck Company of Burlington, North Carolina, Inc........ 32.2 Belk Department Store of Hickory, N.C., Inc................. 22.9 Belk-Beck Co. of High Point, N.C., Incorporated............. 24.8 Belk Brothers of Monroe, North Carolina, Incorporated....... 29.3 Belk's Department Store of New Bern, N.C., Incorporated..... 21.7 Belk-Harry Company, Salisbury, N.C.......................... 41.6 Belk's Department Store of Union, S.C., Incorporated........ 44.5 Belk Stores Services, Inc. (BSS)............................ 33.5 Carolina Place Associates Partnership (CPA)................. 25.0 JV Properties (February through November, 1995-see Note 13)....................................................... 50.0 Belk of Virginia, Inc....................................... 59.4 </TABLE> F-9 <PAGE> 1699 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Condensed combined financial information of the unconsolidated entities is as follows: <TABLE> <CAPTION> YEAR ENDED ---------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ------------ <S> <C> <C> <C> Current assets................................. $14,736,826 $31,308,191 $167,857,312 Noncurrent assets.............................. 24,087,106 18,387,934 106,395,866 Current liabilities............................ 4,772,531 31,768,701 161,359,126 Noncurrent liabilities......................... 19,847,956 17,991,550 48,733,730 Shareholders' equity........................... 14,203,445 (64,126) 64,160,322 Revenues....................................... 41,461,229 27,461,938 210,329,184 Net income..................................... 6,706,442 3,050,213 7,430,373 </TABLE> During the year ended February 1, 1997, the Company acquired a 59.4% interest in Belk of Virginia, Inc., (Virginia). Virginia was formed to acquire a controlling interest in retail companies headquartered in Virginia. The Company's control of Virginia is considered temporary and accordingly, the investment has been accounted for on the equity method. Equity in earnings of unconsolidated entities for the year ended February 1, 1997 includes $3,072,000, net of income tax expense of $1,973,000, for the Company's portion of the gain recognized by CPA partnership for the sale of its investment in Carolina Place Joint Venture, a retail mall joint venture. (4) INVESTMENTS The Company classifies all equity securities with a readily determinable market value as securities available-for-sale with unrealized gains and losses, net of income taxes, reported as a component of shareholders' equity. Details of the equity investments in available-for-sale securities are as follows: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> Cost................................................. $ 2,603 $ 2,603 $ 2,603 Gross unrealized gains............................... 310,985 452,735 503,465 -------- -------- -------- Fair value of securities............................. $313,588 $455,338 $506,068 ======== ======== ======== </TABLE> Gains and losses on sales of securities are recognized when realized on a specific identification basis. Gross realized gains included in income in 1996 and 1997 were $18,316 and 0, respectively. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values are recorded at original cost when ownership is less than 20%. Any such investments owned 20% or more but not greater than 50% are accounted for on the equity method. Investments that were previously accounted for on the cost method may become qualified for use of the equity method. The carrying amount of those investments are adjusted to reflect the investor's share of the income, losses and dividends received from the investees. The Company owns 12.9% of TAGS Stores, LLC (TAGS) and, accordingly, accounts for its investment in TAGS on a cost basis. In September 1997, the managers and advisory board of TAGS adopted a formal plan to liquidate its operations during the 1997 Christmas retailing season. During the nine months ended November 1, 1997, the Company reduced its investment in TAGS by $1,350,442, to the estimated net realizable value of its investment. F-10 <PAGE> 1700 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (5) PROPERTY AND EQUIPMENT, NET Details of property and equipment are as follows: <TABLE> <CAPTION> ESTIMATED FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, LIVES 1996 1997 1997 --------- ------------ ------------ ------------ (UNAUDITED) <S> <C> <C> <C> <C> Land................................ N/A $ 21,535,585 $ 7,158,086 $ 7,455,488 Buildings........................... 30-50 179,786,015 96,911,437 100,897,282 Furniture, fixtures and equipment... 5-7 40,807,361 40,628,571 48,422,351 Construction in progress............ N/A 399,297 1,767,930 -- ------------ ------------ ------------ 242,528,258 146,466,024 156,775,121 Less accumulated depreciation and amortization...................... (66,719,663) (63,956,099) (67,942,171) ------------ ------------ ------------ Property and equipment, net......... $175,808,595 $ 82,509,925 $ 88,832,950 ============ ============ ============ </TABLE> Included in the February 3, 1996, February 1, 1997 and November 1, 1997 amounts above is land of $5,144,200 and building, net of accumulated depreciation, of $31,031,355 and $29,867,676 and $28,994,917, respectively, related to a building leased by BSS from the Company. Rental operations with affiliate consist of the following components: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> Rental income................................... $ 4,182,912 $ 4,182,912 $ 3,137,184 Interest expense................................ (3,033,032) (2,997,456) (2,214,635) Depreciation expense............................ (1,163,679) (1,163,679) (872,759) Property taxes.................................. (69,568) (66,487) (43,798) ----------- ----------- ----------- $ (83,367) $ (44,710) $ 5,992 =========== =========== =========== </TABLE> (6) ACCRUED EXPENSES Accrued expenses are comprised of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> Salaries, wages and employee benefits.............. $2,413,294 $2,220,796 $2,214,100 Interest........................................... 273,934 580,895 528,062 Taxes, other than income........................... 402,240 317,854 560,091 Rent............................................... 228,242 227,129 25,574 Other.............................................. 1,670,962 1,882,037 1,898,780 ---------- ---------- ---------- $4,988,672 $5,228,711 $5,226,607 ========== ========== ========== </TABLE> F-11 <PAGE> 1701 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (7) BORROWINGS Long-term debt, principally due to banks, and capital lease obligations consist of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> Capital lease obligations through October 2010.......................................... $ 6,405,170 $ 6,080,621 $ 5,828,279 9.625% mortgage note payable in installments, through June 2003............................. 31,318,518 30,913,713 30,583,598 8.00% unsecured notes payable in installments, through January 2007.......................... 733,334 666,666 666,666 5.6% secured notes payable due in January 1998.......................................... -- 2,941,534 2,941,534 Unsecured term loan agreement with three banks, due in 2002................................... 23,940,000 -- -- Unsecured term loan agreement payable in installments through October 2003; interest at LIBOR (5.65% at November 1, 1997) plus from 80 to 175 basis points........................... -- 42,903,000 38,049,105 ----------- ----------- ----------- 62,397,022 83,505,534 78,069,182 Less current installments....................... (3,956,416) (10,263,802) (10,307,637) ----------- ----------- ----------- Long-term debt and capital lease obligations, excluding current installments................ $58,440,606 $73,241,732 $67,761,545 =========== =========== =========== </TABLE> Carrying values of land and buildings pledged as collateral for the mortgage note were approximately $35,012,000 at February 1, 1997. The secured notes payable are collateralized by letters of credit with a bank. The annual maturities of long-term debt over the next five years are: $10,263,802, $7,381,329, $7,445,500, $7,515,258 and $7,591,130. On November 1, 1996, the Company signed a term loan agreement with a bank for $45.3 million. The proceeds of this term loan were used to refinance existing term debt, to finance store renovations and fund the investment in Virginia. The Company's term loan agreement contains, among other provisions and covenants, restrictions relating to the creation of additional funded debt, and the disposal, expansion or purchase of property and equipment and investments. In addition, the Company must maintain at the end of any fiscal year a maximum ratio of consolidated debt to consolidated total tangible capital, as defined. The Company must also maintain at the end of the fiscal quarter, commencing with the fiscal quarter ending February 1, 1997, at minimum fixed charge coverage ratio, as defined. The Company was in compliance with the provision and covenants of the term loan agreement as of November 1, 1997. The covenants also include a restriction on dividend payments. The Company can only declare dividends from operating profits from the preceding fiscal year. At February 1, 1997, the Company had $61,518,505 of retained earnings unavailable for dividend payments. The Company has entered into interest rate swap agreements with various financial institutions to manage the exposure to changes in interest rates on its LIBOR based indebtedness. The amount of indebtedness covered by the interest rate swaps is $100 million at November 1, 1997. Subsequent to November 1, 1997, the Company entered into an additional $50 million in interest rate swaps. The amount of indebtedness covered by the interest rate swaps is $150 million for 1998 and 1999, $75 million for 2000 and 2001 and $50 million through 2007. At February 1, 1997 the Company has unsecured line of credit agreements totaling $23,500,000 with banks at interest rates quoted by the banks (which historically have been approximately 80 points above F-12 <PAGE> 1702 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) LIBOR.) The amounts outstanding under these agreements at February 3, 1996, February 1, 1997 and November 1, 1997 were $1,150,000, $1,000,000 and $5,748,830, respectively. During fiscal 1997, short-term loan agreements were refinanced and subsequently distributed to BAC. See note 13 for further discussion. (8) LEASES The Company leases certain stores, warehouse facilities and equipment under operating leases. The majority of those leases will expire over the next 20 years. The leases usually contain renewal options and provide for payment by the leasee of real estate taxes and other expenses and, in certain instances, increased rentals based on percentages of sales. Future minimum lease payments under noncancelable leases as of February 1, 1997 were as follows: <TABLE> <CAPTION> FISCAL YEAR CAPITAL OPERATING - ----------- ----------- ----------- <S> <C> <C> 1998...................................................... $ 582,984 $ 1,605,694 1999...................................................... 582,984 1,574,194 2000...................................................... 582,984 1,443,407 2001...................................................... 582,984 1,328,832 2002...................................................... 582,984 1,333,288 After 2002................................................ 5,052,523 10,249,665 ----------- ----------- Total.................................................. 7,967,443 $17,535,080 =========== Less imputed interest....................................... (1,886,822) ----------- Present value of minimum lease payments..................... 6,080,621 Less current portion........................................ (338,208) ----------- $ 5,742,413 =========== </TABLE> Rental expense for all operating leases consists of the following: <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Buildings: Minimum rentals.................................. $1,239,331 $1,352,938 $1,689,758 Contingent rentals............................... 184,476 183,296 211,014 Equipment.......................................... 247,517 234,969 212,615 ---------- ---------- ---------- Total rental expense.......................... $1,671,324 $1,771,203 $2,113,387 ========== ========== ========== </TABLE> Contingent rentals are determined on the basis of a percentage of sales in excess of stipulated minimums for certain store facilities. F-13 <PAGE> 1703 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (9) INCOME TAXES Federal and state income tax expense (benefit) from continuing operations is as follows: <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Current: Federal.................... $3,285,194 $1,514,409 $ 280,441 $ 769,020 $ 113,627 State...................... 915,268 450,039 1,083,322 266,025 127,481 ---------- ---------- ---------- ---------- ---------- 4,200,462 1,964,448 1,363,763 1,035,045 241,108 Deferred: Federal.................... (607,814) 910,584 2,045,817 462,397 828,907 State...................... (157,761) 66,921 824,172 39,558 96,985 ---------- ---------- ---------- ---------- ---------- (765,575) 977,505 2,869,989 501,955 925,892 ---------- ---------- ---------- ---------- ---------- Income taxes................. $3,434,887 $2,941,953 $4,233,752 $1,537,000 $1,167,000 ========== ========== ========== ========== ========== </TABLE> A reconciliation between income taxes from continuing operations computed using the effective income tax rate and the federal statutory income tax rate of 34% for January 31, 1995 and February 3, 1996 and 35% for February 1, 1997 was as follows: <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Income tax at the statutory federal rate........... $2,808,223 $2,835,993 $3,552,106 State income taxes, net of federal income tax benefit.......................................... 499,955 341,194 1,239,871 Other.............................................. 126,709 (235,234) (558,225) ---------- ---------- ---------- Income taxes....................................... $3,434,887 $2,941,953 $4,233,752 ========== ========== ========== </TABLE> F-14 <PAGE> 1704 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred taxes based upon differences between the financial statement and tax bases of assets and liabilities and available tax carryforwards consist of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ------------ <S> <C> <C> Deferred tax assets: Benefit plan costs........................................ $1,114,722 $ 1,140,803 Developer incentive....................................... 1,160,230 956,744 Inventory capitalization.................................. 822,945 818,116 Capital lease............................................. 455,765 467,775 Allowance for doubtful accounts........................... 178,405 211,570 Tax carryovers............................................ 174,494 94,562 JV Property joint venture................................. 848,546 1,190 Other..................................................... 2,477 2,492 ---------- ------------ Gross deferred tax assets................................... 4,757,584 3,693,252 Less valuation allowance.................................... -- (52,960) ---------- ------------ Net deferred tax assets..................................... 4,757,584 3,640,292 ---------- ------------ Deferred tax liabilities: Gain on disposal of rental operations..................... -- 29,179,273 Property and equipment.................................... 3,141,918 3,160,156 CPA Partnership........................................... 48,530 1,973,415 Investment securities..................................... 121,642 177,087 Prepaid pension costs..................................... 205,889 136,035 Other..................................................... 86,778 39,698 ---------- ------------ Gross deferred tax liabilities.............................. 3,604,757 34,665,664 ---------- ------------ Net deferred tax assets (liabilities)....................... $1,152,827 $(31,025,372) ========== ============ </TABLE> As of February 1, 1997, a $52,960 valuation allowance has been recorded for the portion of the state net operating loss carryforward unlikely to be utilized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the temporary differences becoming deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future income, and tax planning strategies in making this assessment. As of February 1, 1997, the Company has net operating loss carryforwards for state income tax purposes of $537,000 net of the valuation allowance of $683,000, which are available to offset future state taxable income, if any, through 2002. (10) BENEFIT PLANS The Company participates in the Belk Pension Plan, a defined benefit multi-employer plan, that covers substantially all of the employees of the Belk companies. Pension expense allocated to the Company was $123,368, $240,791 and $178,910 for fiscal years 1995, 1996 and 1997, respectively. Because the Belk Pension Plan is a multi-employer plan, allocation of plan assets to the Company is not practical. The Company also participates in the Belk Employee's Group Medical Plan, that provides medical benefits to substantially all employees of the Belk companies. This Plan is "self-funded" for medical benefits through a 501(c)(9) Trust. The Company participates in a Group Life Insurance Plan that provides life insurance to its employees, and is fully insured through a contract issued by an insurance company. Contributions by the Company under the Belk Employees' Group Medical Plan and the Group Life Insurance Plan amounted to approximately $1,341,000, $1,379,000 and $1,431,000 in fiscal years 1995, 1996 and 1997, respectively. F-15 <PAGE> 1705 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company participates in the Belk Profit Sharing Plan, a contributory, defined contribution multi-employer plan, that provides benefits for substantially all employees of the Belk companies. The cost of the plan generally represent 10% of profits, as defined, and amounted to $1,027,919, $996,136 and $1,240,036 in fiscal years 1995, 1996 and 1997, respectively. The Company participates in a Supplemental Executive Retirement Plan (SERP), a non-qualified defined benefit retirement plan that provides retirement and death benefits to certain qualified executives of the Company. Total SERP costs charged to operations were $171,587, $213,117 and $75,819 in fiscal years 1995, 1996 and 1997, respectively. The effective discount rate used in determining the net periodic SERP cost was 8.5% for fiscal years 1995 and 1996, and 7.25% for fiscal year 1997. Actuarial gains and losses are amortized over the average remaining service lives of the participants. Certain eligible employees also participate in a non-qualified Deferred Compensation Plan (DCP). Participants in the plan have elected to defer a portion of their regular compensation subject to certain limitations prescribed by the DCP. The Company is required to pay interest on the employees' deferred compensation at various rates between 9% and 15%. Total interest expense related to this plan and charged to operations was $175,833, $188,732 and $191,972 in fiscal years 1995, 1996 and 1997, respectively. The Company provides postretirement benefits to certain retired employees in the form of medical and life insurance premiums. The Company recorded approximately $142,000, $176,000 and $191,000 as selling, general and administrative expense in fiscal years 1995, 1996 and 1997, respectively. (11) RELATED PARTY TRANSACTIONS The Belk Center, Inc. services the Company's customer accounts receivable. The Company paid The Belk Center, Inc. approximately $1,866,000, $2,012,000 and $3,072,000 during 1995, 1996 and 1997, respectively, for these services. Various other selling, general, administrative and transaction processing services are provided by Belk Stores Services, Inc. (BSS). The Company paid BSS approximately $3,449,000, $4,002,000 and $3,612,000 during 1995, 1996 and 1997, respectively, for these services, not including the transaction processing services. The Company paid approximately $2,109,000, $2,198,000 and $2,305,000 during 1995, 1996 and 1997, respectively for transaction processing fees. The Company had a demand deposit with an affiliated company at January 31, 1995, February 3, 1996 and February 1, 1997 of $5,509,134, $1,100,000 and $3,290,000, respectively, which is included in cash and cash equivalents in the accompanying consolidated balance sheets. The Company may participate in operational, investing and financing activities with other Belk companies. Receivables from and payables to affiliates within the consolidated entity have been eliminated. (12) FAIR VALUE OF FINANCIAL INSTRUMENTS For financial instruments which are short-term in nature, such as cash and cash equivalents, accounts receivable, accounts receivable with affiliates, accounts payable, accounts payable with affiliates, accrued F-16 <PAGE> 1706 expenses and lines of credit, carrying values approximate fair values. The fair value of other financial instruments is as follows: <TABLE> <CAPTION> FEBRUARY 3, 1996 FEBRUARY 1, 1997 NOVEMBER 1, 1997 ------------------------- ----------------------- ------------------------- CARRYING FAIR CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE VALUE VALUE ----------- ----------- ---------- ---------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> Notes payable........ 104,840,000 104,840,000 -- -- -- -- Long-term debt (excluding capitalized leases)............ 55,991,852 57,181,613 74,483,379 75,751,773 69,299,369 71,578,285 Interest rate swap agreements......... -- -- -- -- -- (923,816) Fair value of securities......... 313,588 313,588 455,338 455,388 506,068 506,068 </TABLE> The fair value of the Company's fixed rate long-term debt and notes payable is estimated based on the current rates offered to the Company for debt of the same remaining maturities. The carrying values of the Company's variable rate long-term debt and note payable are reasonable estimates of fair value. The fair value of interest rate swap agreements is the estimated amount that the Company would pay to terminate the swap agreement, taking into account current credit worthiness of the swap counterparties. (13) ACQUISITION AND DISCONTINUED OPERATIONS On November 6, 1995, BAC, Inc. (BAC), a wholly owned subsidiary of the Company, purchased the stock of Ivey Properties Inc., (IVEY), a real estate investment trust. The largest holding of Ivey was an interest in JV Properties (JV), a retail mall joint venture. Prior to fiscal year 1996 Ivey owned 50% of JV, while the other 50% was owned by the Company. The acquisition was accounted for as a purchase. Prior to the purchase, the Company's ownership of JV was accounted for using the equity method of accounting. Subsequent to the purchase, the Company has consolidated assets, liabilities and operations of JV, which is comprised of the operations of a shopping mall facility located in Charlotte, North Carolina. In November 1996, JV's interest in the shopping mall, along with debt, was distributed to BAC in redemption of BAC's partnership interest in JV. Subsequently, the Company sold the stock of BAC to an unrelated third party and recognized a gain on the disposal of the retail operations totaling $41,466,521, net of income tax expense of $29,897,000. The accompanying financial statements present the results of operations of JV, previously reported as rental operations, as discounted operations. JV recorded revenues of $11,897,000 for 1997 and $4,111,000 for the three months ended February 3, 1996, (after purchasing the stock of Ivey). (14) EXTRAORDINARY ITEM The extraordinary item of $2,867,000, net of tax, represents a penalty paid by JV to extinguish its mortgage debt on the SouthPark property during 1996. This debt was distributed to BAC during 1997 (see note 13). F-17 <PAGE> 1707 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATIONS ACT STATE OF NORTH CAROLINA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 1708 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1709 SEC.SEC. 55-13-04 TO 55-13-19. Reserved for future codification purposes. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1710 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1711 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1712 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1713 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ------------- ------------ ------------ ------------ ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement........ $ 196,795,296 $ 49,798,772 $ 88,450,755 $ 93,106,362 $ 125,681,609 Adjustments to eliminate less than wholly-owned subsidiaries........ -- -- -- -- -- Less: Leased sales................. (11,746,399) -- -- -- -- ------------- ------------ ------------ ------------ ------------- Adjusted Shareholders' Statement... $ 185,048,897 49,798,772 88,450,755 93,106,362 125,681,609 ============= ------------ ------------ ------------ ------------- Adjustments for non-operating items: Gain/loss on disposal of PP&E.... 60,058 103,044 103,044 Gain/loss on sale of securities..................... (4,214) (7,230) (7,230) Impairment loss.................. -- -- -- Equity in earnings of unconsolidated subsidiaries.... (6,026,112) (10,339,303) (10,339,303) Gain/loss on discontinued operations..................... (37,857,535) (64,954,074) (64,954,074) Adjustment to tax expense........ -- -- -- 29,897,000(3) ------------- ------------ ------------ ------------ ------------- Total non-operating items.......... (43,827,803) (75,197,563) (75,197,563) 29,897,000 ------------- ------------ ------------ ------------ ------------- Other Adjustments: Adjustment for dividends received from other Belk entities....... (41,162) (70,623) (70,623) -- Adjustment for ownership in other Belk entities.................. -- -- -- (102,373,402) ------------ ------------ ------------ ------------- Per Model.......................... $ 5,929,807 $ 13,182,569 $ 17,838,176 $ 53,205,207 ============ ============ ============ ============= COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents........ $ (14,783,850) Negative cash balances reclassified to accounts payable...................... -- Receivables from affiliates, net.......................... (2,715,623) Loans receivable from affiliates, net.............. -- Liabilities Notes payable.................. 1,000,000 Current installments of long-term debt............... 9,925,594 Current portion of obligations under capital leases......... 338,208 Payables to affiliates, net.... 17,460,521 Long-term debt, excluding current installments......... 67,499,319 Obligations under capital leases, excluding current portion...................... 5,742,413 Loans payable to affiliates, net.......................... -- ------------- Net debt (cash).................... 84,466,582 Adjustments to eliminate less than wholly-owned subsidiaries........ -- ------------- Per Model.......................... $ 84,466,582 ============= </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. (3) Shareholders' equity was adjusted to remove a reserve for deferred tax liability, relating to the sale of BAC, which will be eliminated in the reorganization. B-1 <PAGE> 1714 SUPPLEMENT NO. 40 <PAGE> 1715 BELK BROTHERS COMPANY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 40 <PAGE> 1716 BELK ENTERPRISES, INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Enterprises, Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $1.00 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 18.3948 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 15,820,055 shares of New Belk Class A Common Stock which will represent approximately 26.3668% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 1717 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1718 BELK ENTERPRISES, INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK ENTERPRISES, INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Enterprises, Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $1.00 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 18.3948 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1719 BELK ENTERPRISES, INC. SUPPLEMENT NO. 41 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 41 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK ENTERPRISES, INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 22 SELECTED HISTORICAL FINANCIAL INFORMATION................... 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 24 General................................................... 24 Results of Operations..................................... 24 Comparison of Nine Months Ended November 1, 1997 and November 2, 1996........................................ 24 Comparison of Fiscal Years Ended February 1, 1997 and February 3, 1996........................................ 25 Comparison of Fiscal Years Ended February 3, 1996 and January 31, 1995........................................ 26 Seasonality and Quarterly Fluctuations.................... 26 Liquidity and Capital Resources........................... 27 Impact of Inflation....................................... 27 BUSINESS OF THE COMPANY..................................... 27 SECURITY OWNERSHIP OF THE COMPANY........................... 29 INDEX TO HISTORICAL FINANCIAL STATEMENTS.................... F-1 Report of KPMG Peat Marwick LLP, Independent Auditors..... F-2 Consolidated Balance Sheets............................... F-3 Consolidated Statements of Income......................... F-4 Consolidated Statements of Shareholders' Equity........... F-5 Consolidated Statements of Cash Flows..................... F-6 Notes to Consolidated Financial Statements................ F-7 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION................................... B-1 </TABLE> <PAGE> 1720 THE COMPANY The Company was incorporated as a North Carolina corporation in 1947. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $1 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 18.3948 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were " " shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1721 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 1,500,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A 3 <PAGE> 1722 Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than 4 <PAGE> 1723 the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. 5 <PAGE> 1724 Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be 6 <PAGE> 1725 filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall 7 <PAGE> 1726 otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 1727 Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly 9 <PAGE> 1728 in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damage for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, the participating shares are reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, 10 <PAGE> 1729 guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. 11 <PAGE> 1730 Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates 12 <PAGE> 1731 must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. 13 <PAGE> 1732 A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1733 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ------------ ------------ -------- --------------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............. $342,793,899 $205,682,737 0.6 $98,164,461 $25,245,181 EBITDA................ 45,678,923 19,493,287 7 98,164,461 38,288,548 EBIT.................. 37,270,794 14,617,893 10 98,164,461 48,014,469 Net Income............ 18,938,851 5,902,041 15 -- 88,530,615 Book Equity........... 145,866,827 8,710,210 1 -- 8,710,210 </TABLE> 15 <PAGE> 1734 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk Department Store of Ahoskie, N.C., Inc. 9.7289% X $ 3,798,793 = $ 369,581 Belk Department Store, Incorporated of Aiken, S.C. 26.6667 X 3,110,056 = 829,349 Belk's Department Store of Albany, Georgia 1.8611 X 6,361,246 = 118,389 Belk's Department Store of Albemarle, N.C., Incorporated 3.8698 X 3,321,651 = 128,541 Gallant-Belk Company .7789 X 31,711,816 = 247,003 Belk of Asheboro, N.C., Inc. 9.600 X 10,609,421 = 1,018,504 Belk's Department Store of Asheville, N.C., Incorporated 18.2564 X 8,095,359 = 1,477,921 Belk of Athens, Ga., Inc. .9918 X 14,289,892 = 141,727 Belk of Statesboro, Ga., Inc. 99.9552 X 13,930,410 = 13,924,170 Belk-Simpson Co., of Bainbridge, Ga., Inc. 16.0000 X 3,606,676 = 577,068 Belk's Department Store of Batesburg, S.C., Inc. 2.4540 X 924,996 = 22,699 Belk-Simpson Company, Incorporated of Beaufort, S.C. .2381 X 7,226,118 = 17,205 Belk Brothers Company 26.6148 X 261,959,587 = 69,720,020 Belk's Department Store of Boone, N.C., Incorporated 28.7879 X 12,985,599 = 3,738,281 Belk's Department Store of Brevard, N.C., Incorporated 1.1667 X 3,632,918 = 42,385 Parks-Belk Company, Incorporated 13.8727 X 12,516,874 = 1,736,428 Belk-Beck Company of Burlington, N.C., Inc. 1.1972 X 13,920,433 = 166,655 Belk's Department Store of Camden, S.C., Incorporated .7541 X 11,802,653 = 89,004 </TABLE> 16 <PAGE> 1735 <TABLE> <CAPTION> - -------------------- -------------------- -------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk's Department Store of Cartersville, Ga., Incorporated 3.0418% X 3,810,247 = 115,900 Belk Department Store of Charleston, S.C., Inc. 19.2991 X 31,169,909 = 6,015,512 Belk-Matthews Company of Cherryville, N.C., Incorporated .1343 X 601,119 = 807 Belk's Department Store of Chesterfield, S.C., Incorporated 6.3350 X 967,437 = 61,287 Parks-Belk Company of Clarksville, Tenn. 49.2976 X 10,855,465 = 5,351,484 Belk Department Store of Clinton, N.C., Inc. 4.9526 X 11,043,990 = 546,965 Belk's Department Store of Columbia, S.C., Incorporated 36.2574 X 2,690,719 = 975,585 Belk's Department Store of Conway, S.C., Incorporated 14.3750 X 2,033,804 = 292,359 Belk-Simpson Company of Corbin, Ky., Incorporated 10.4762 X 6,975,250 = 730,741 Belk of Miss., Inc. 22.2111 X 19,360,988 = 4,300,289 Belk of Cornelia, Ga., Inc. 19.3287 X 4,947,119 = 956,214 Belk of Dalton, Ga., Inc. 7.5973 X 8,605,017 = 653,749 Belk of Danville, Va., Inc. 3.3170 X 16,469,104 = 546,280 Belk of Dawson, Ga., Inc. 21.5938 X 862,681 = 186,286 Belk's Department Store of Dunn, N.C., Incorporated .9090 X 14,191,195 = 128,998 Belk Department Store of Eden, N.C., Inc. 13.4745 X 3,010,826 = 405,694 Belk Department Store of Edenton, N.C., Inc. 25.1248 X 1,566,173 = 393,498 Belk Department Store of Elkin, N.C., Inc. 25.2632 X 1,368,240 = 345,661 Belk's Department Store of Florence, S.C., Incorporated 25.3510 X 24,968,405 = 6,329,740 </TABLE> 17 <PAGE> 1736 <TABLE> <CAPTION> - -------------------- -------------------- -------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk Department Store of Forest City, N.C., Inc. 9.8433% X 7,237,010 = 712,361 Hudson-Belk Co. of Fuquay-Varina, N.C., Inc. 4.7184 X 5,660,048 = 267,064 Belk's Department Store of Gaffney, S.C., Incorporated 1.2500 X 1,141,654 = 14,271 Matthews-Belk Company 1.4844 X 35,812,651 = 531,603 Belk Department Store of Greenville, N.C., Inc. 20.7164 X 25,446,468 = 5,271,592 Belk-Simpson Company, Greenville, S.C. 20.0142 X 42,976,855 = 8,601,474 Belk Department Store of Greenwood, S.C., Inc. 17.4825 X 8,472,623 = 1,481,226 Belk-Simpson Company of Harlan, Ky., Incorporated 10.5263 X 5,274,830 = 555,244 Belk-Simpson Company of Hendersonville, N.C., Incorporated .3125 X 9,384,434 = 29,326 Belk Department Store of Hickory, N.C., Inc. 3.7510 X 26,225,818 = 983,731 Belk-Beck Co. of High Point, N.C., Inc. .4970 X 6,270,761 = 31,166 Belk's Department Store of Jacksonville, N.C., Inc. 8.5478 X 29,859,953 = 2,552,369 Belk of LaGrange, Ga., Inc. 16.2920 X 25,267,525 = 4,116,585 Belk's Department Store, Incorporated, of Lake City, S.C. .8750 X 1,498,527 = 13,112 Belk's Department Store of Laurens, S.C., Incorporated .2082 X 4,498,438 = 9,366 Belk of Lawrenceville, Ga., Inc. 21.5815 X 6,024,824 = 1,300,248 Belk's Department Store of Lenior, N.C., Incorporated 5.5319 X 6,891,590 = 381,236 Belk-Lindsey Stores, Inc. 56.1613 X 76,945,152 = 43,213,398 Belk Stores of Virginia, Inc. 1.2195 X 129,824,509 = 1,583,210 </TABLE> 18 <PAGE> 1737 <TABLE> <CAPTION> - -------------------- -------------------- -------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk-Matthews Company of Macon, Ga. 2.400% X 14,496,059 = 347,905 Belk-Matthews Company of Milledgeville, Ga., Inc. .5093 X 6,178,663 = 31,468 Belk of Monroe, Ga., Inc. 17.2414 X 1,961,637 = 338,214 Belk Brothers of Monroe, N.C., Incorporated 1.3271 X 16,994,981 = 225,540 Belk's Department Store of Morehead City, N.C., Inc. 5.2703 X 10,315,587 = 543,662 Belk's Department Store of Mount Airy, N.C., Incorporated 55.1122 X 3,686,607 = 2,031,770 Belk's Department Store of New Bern, N.C., Incorporated 17.1406 X 7,893,721 = 1,353,031 Belk of Orangeburg, S.C., Inc. 13.8953 X 11,906,535 = 1,654,449 Hudson-Belk Company 11.7731 X 71,085,804 = 8,369,003 Belk Department Store of Reidsville, N.C., Inc. 4.8362 X 2,024,233 = 97,896 Belk's Department Store of Rockingham, N.C., Incorporated 10.1533 X 2,851,585 = 289,530 Belk-Rhodes Company, Rome, Ga. .4902 X 6,599,184 = 32,349 Belk-Harry Company, Salisbury, N.C. 1.6162 X 9,874,380 = 159,590 Belk of Seneca, S.C., Inc. 9.4697 X 4,287,122 = 405,978 Belk Department Store of Shelby, N.C., Inc. 1.0352 X 13,263,329 = 137,302 Belk of Silver City, N.C., Inc. 2.8070 X 107,854 = 3,027 Belk of Virginia, Inc. 40.5956 X 92,754,090 = 37,654,079 Belk of South Boston, Va., Inc. .3014 X 3,958,842 = 11,932 Belk of Spartanburg, S.C., Inc. 6.1131 X 10,010,255 = 611,937 Belk Realty of Staunton, Va., Inc. .1019 X 3,827,783 = 3,901 Belk Department Store of Stuttgart, Ark., Inc. 3.6712 X 2,236,259 = 82,098 </TABLE> 19 <PAGE> 1738 <TABLE> <CAPTION> - -------------------- -------------------- -------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk of Lawrenceville, Va., Inc. 4.8780% X 10,018,391 = 488,697 Tags Stores, LLC 10.9430 X 15,118,749 = 1,654,445 Belk of Thomaston, Ga., Inc. 41.5589 X 30,307,653 = 12,595,527 Belk of Thomasville, N.C., Inc. 8.3140 X 1,980,347 = 164,646 Belk of Thomson, Ga., Inc. 30.7918 X 1,433,505 = 441,402 Belk of Toccoa, Ga., Inc. 14.2105 X 4,349,964 = 618,152 Belk of Union, S.C., Inc. 2.6667 X 901,776 = 24,048 Belk of Washington, Ga., Inc. 23.1980 X 1,274,815 = 295,732 Belk of Waycross, Ga., Inc. 1.5025 X 43,824,848 = 658,468 Belk Department Store of Waynesville, N.C., Inc. 37.7160 X 6,879,640 = 2,594,725 Belk Department Store of Wilkesboro, N.C., Inc. 6.8293 X 3,451,898 = 235,740 Belk of Canton, Ga., Inc. 24.6718 X 2,207,655 = 544,668 Belk's Department Store of Winnsboro, S.C., Incorporated 4.7619 X 845,995 = 40,285 Howard's Department Store of Columbia, S.C., Inc. 6.6667 X 3,010,794 = 200,721 ------------ Total $269,292,478 ============ Relative Operating Value of Company $ 88,530,615 Relative Operating Value of Other Companies Owned by Company + 269,292,478 ------------ Total Relative Value of Company = $357,823,093 ============ </TABLE> 20 <PAGE> 1739 The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk's Department Store of Asheville, North Carolina, Incorporated .2086% X $357,823,093 = $ 746,419 Belk Brothers Company 9.0466% X 357,823,093 = 32,370,824 Belk Finance Company 4.6265% X 357,823,093 = 16,554,685 Belk Department Store of Edenton, N.C., Inc. .0464% X 357,823,093 = 166,030 Matthews-Belk Company .5481% X 357,823,093 = 1,961,228 Belk Brothers of Monroe, North Carolina, Incorporated .2714% X 357,823,093 = 971,132 Belk-Harry Company -- Salisbury, N.C. .0985% X 357,823,093 = 352,456 ------------ Total $ 53,122,774 ============ Total Relative Value of Company $357,823,093 Total Relative Value of Company Owned by Other Belk Companies - 53,122,774 ------------ Net Relative Value of Company = $304,700,319 ============ </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $304,700,319 / $1,155,623,145 = 26.3668% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (26.3668% X 60,000,007) / 860,030.75 = 18.3948 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 21 <PAGE> 1740 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share, and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR NINE MONTHS ENDED FEBRUARY 1, ENDED NOVEMBER 1, 1997 1997 ----------------- ----------------- <S> <C> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 18.75 $ 2.19 Book value per share(2)................................... 144.43 144.88 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 0.28 Book value per share(4)................................... 12.66 12.79 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 17.46 5.19 Book value per share...................................... 232.91 235.24 </TABLE> - --------------- (1) Based on 1,009,973 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997 and the nine-month period ended November 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 1,009,973 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the periods presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying the New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 22 <PAGE> 1741 SELECTED HISTORICAL FINANCIAL INFORMATION The following selected historical financial information of the Company presented below under the captions "Selected Statement of Income Data" and "Selected Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended February 1, 1997, are derived from the financial statements of the Company. The financial statements as of February 1, 1997 and for the then year ended have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Such financial statements, and the report thereon, are included elsewhere in this Prospectus Supplement. The selected data presented below for, and as of the end of, each of the years in the four-year period ended February 3, 1996 and for the nine-month periods ended November 2, 1996 and November 1, 1997, and as of November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. The information presented below under the caption "Selected Operating Data" is unaudited. Selected historical combined and pro forma financial data for the Belk Companies is included in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED ------------------------------------------------------------------------ --------------------------- FEBRUARY 2, FEBRUARY 1, JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1993 1994 1995 1996 1997 1996 1997 ------------ ------------ ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> <C> <C> SELECTED STATEMENT OF INCOME: Revenues............... $393,351,055 $381,061,032 $374,457,278 $365,006,555 $347,885,356 $236,038,169 $235,450,711 Cost of goods sold..... 271,849,864 266,905,436 257,579,601 250,587,410 238,273,497 162,932,973 160,051,021 Depreciation and amortization......... 8,802,894 8,983,501 9,561,095 9,379,909 8,408,129 6,146,553 6,243,386 Income from continuing operations........... 12,032,842 6,076,273 7,449,643 6,873,299 18,938,851 6,989,952 2,215,541 Net income............. 12,032,842 7,223,570 7,449,643 6,873,299 18,938,851 6,989,952 2,215,541 Net income per share(1)............. 12.02 7.19 7.38 6.81 18.75 6.92 2.19 Dividends per share.... 1.40 1.50 1.60 1.75 1.85 1.85 1.85 Weighted average number of shares outstanding.......... 1,001,017 1,004,749 1,009,973 1,009,973 1,009,973 1,009,973 1,009,973 SELECTED BALANCE SHEET DATA: Accounts receivable -- net.... 63,478,548 62,677,622 58,350,729 56,846,153 61,139,946 56,874,347 58,288,599 Merchandise inventories.......... 83,640,075 82,075,954 79,838,000 76,676,096 76,348,212 90,799,279 87,029,218 Working capital........ 107,125,922 112,872,280 116,371,855 113,553,360 99,993,361 93,136,926 95,240,387 Total assets........... 295,228,542 293,623,805 294,067,315 296,952,445 394,477,868 357,634,982 359,765,459 Short-term debt........ 6,200,010 2,694,726 1,734,726 1,134,726 22,434,726 24,801,309 23,254,726 Long-term debt......... 64,647,946 73,137,614 66,189,746 52,941,718 90,025,838 73,705,494 79,240,270 Capitalized lease obligations.......... 3,255,333 2,901,973 2,575,307 1,525,453 1,371,408 1,409,920 1,243,177 Shareholders' equity... 108,957,060 117,377,024 123,301,313 128,781,912 145,866,827 133,105,110 146,321,190 Book value per share(2)............. 108.85 116.22 122.08 127.51 144.43 131.79 144.88 SELECTED OPERATING DATA: Number of stores at end of period............ 47 49 46 46 40 40 38 Comparable store net revenue increases.... 1.4% 3.7% 2.6% (1.6)% 1.0% 0.5% 2.7% </TABLE> - --------------- (1) Based on the weighted average number of shares of Common Stock outstanding for each period presented. (2) Based on the number of shares of Common Stock outstanding at the end of each period presented. 23 <PAGE> 1742 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the historical consolidated financial condition and results of operations of the Belk Enterprises, Inc. and Subsidiaries for each of the fiscal years ended January 31, 1995, February 3, 1996, and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 which should be read in conjunction with the historical consolidated financial statements, including the notes thereto, included elsewhere in this Proxy Statement/Prospectus. GENERAL Certain Components of Net Income. Revenues include sales from retail operations and leased departments. Cost of goods sold include cost of merchandise, buying, and occupancy expense. Selling, general, and administrative expense ("SG&A") includes payroll, advertising, credit, and depreciation expense. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship to revenues of certain items in the Company's consolidated statements of income and other pertinent financial data. <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995(A) 1996(A) 1997(A) 1996 1997 ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold....................... 68.8 68.7 68.5 69.0 68.0 Selling, general and administrative expenses............................... 27.1 27.4 26.6 28.9 27.4 Income from operations................... 4.1 4.0 4.3 1.2 4.6 Interest expense, net.................... 1.5 1.4 1.9 1.8 2.6 Income before income taxes............... 2.5 2.8 8.2 7.8 1.7 Income taxes............................. 0.9 1.0 3.1 3.0 0.6 Net income............................... 2.0 1.9 5.4 3.0 0.9 Comparable stores revenues increase (decrease)............................. 2.6 (1.6) 1.0 0.5 2.7 Number of stores Opened................................. 1 1 1 1 0 Closed................................. 4 1 5 5 2 Transferred out........................ 0 0 2 2 0 Total -- end of period................... 46 46 40 40 38 </TABLE> - --------------- (a) The fiscal years ended February 1, 1997 and January 31, 1995 consisted of 52 weeks. The fiscal year ended February 3, 1996 consisted of 368 days. COMPARISON OF NINE MONTHS ENDED NOVEMBER 1, 1997 AND NOVEMBER 2, 1996 Revenues. The Company's revenues for the nine months ended November 1, 1997 decreased 0.2%, or $0.6 million, over the same period in 1996 from $236.0 million to $235.4 million. The decrease was attributable to the revenue decrease associated with the closing of 5 stores which contributed a decrease in revenues of $8.5 million. This decrease was partially offset by an increase in comparable store revenues of 2.7%. Cost of Goods Sold. Cost of goods sold decreased 1.8%, or $2.9 million, from $162.9 million for the nine months ended November 2, 1996 to $160.0 million for the nine months ended November 1, 1997 primarily due to decreased revenues. As a percentage of revenues, cost of goods sold decreased from 69.0% in 1996 to 68.0% in 1997. The closed store at Augusta Regency Mall experienced cost of goods sold of 94.3%, as a percentage of revenues, in the nine months ended November 2, 1996. Many of the Florida stores experienced 24 <PAGE> 1743 decreases in cost of merchandise due to better inventory management and lower markdowns in the nine months ended November 1, 1997. Selling, General, and Administrative Expenses. SG&A decreased from 28.9% of revenues for the nine months ended November 2, 1996 to 27.4% of revenues for the nine months ended November 1, 1997. This decrease, which amounted to $3.7 million, was attributable primarily to decreases in payroll, advertising, insurance, and supplies related to the closed stores. These decreases were slightly offset by an increase in bad debt expense. Income from Operations. Income from operations was 1.2% of revenues for the nine months ended November 2, 1996 and 4.6% of revenues for the nine months ended November 1, 1997. The increase, which amounted to $8.1 million, resulted from a decrease of 1.0% and 1.5% in cost of goods sold and SG&A expense as a percentage of revenues, respectively. Interest Expense, Net. Interest expense was 1.8% of revenues for the nine months ended November 2, 1996 and 2.6% of revenues for the nine months ended November 1, 1997. Interest expense was $4.3 million for the nine months ended November 2, 1996 as compared to $6.1 million for the nine months ended November 1, 1997. The $1.8 million increase in interest expense resulted from an increase in average outstanding borrowings of $39.8 million, offset partially by an increase in interest income of $0.6 million. Income before Income Taxes. Income before income taxes decreased $14.4 million from $18.3 million, or 7.8% of revenues for the nine months ended November 2, 1996, to $3.9 million, or 1.7% of revenues for the nine months ended November 1, 1997. A gain of $19.2 million on the sale of property and fixtures of the closed stores in Florida and Georgia was recognized in the nine months ended November 2, 1996. Management does not anticipate that future sales of store assets, if any, will result in a gain of this magnitude. In addition, income before income taxes for the nine months ended November 2, 1996 included an impairment charge of $2.1 million to adjust certain property and equipment to net realizable value. Income before income taxes for the nine months ended November 1, 1997 included an increase in interest expense, net of $1.8 million and a loss on investment of $1.1 million. Net Income. Net income decreased $4.8 million to 0.9% of revenues for the nine months ended November 1, 1997 compared to 3.0% of revenues for the nine months ended November 2, 1996. This decrease is attributable to the items discussed above in Income before income taxes, offset partially by a decrease in the reduction for minority interest in earnings of subsidiaries, of $3.8 million. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 Revenues. The Company's revenues in fiscal year 1997 decreased by 4.7%, or $17.1 million, from $365.0 million in fiscal year 1996 to $347.9 million in fiscal year 1997. On a comparable store basis, revenues increased 1.0% compared to the first 52 weeks of fiscal year 1996. Very solid revenue increases were experienced by recently remodeled stores at Leesburg Lake Square and Gainesville Oaks Mall. The comparable store increases were offset by decreases related to the closed stores in Florida and Georgia which contributed a revenue decrease of $18.2 million. Cost of Goods Sold. As a percentage of revenues, cost of goods sold decreased from 68.7% in fiscal year 1996 to 68.5% in fiscal year 1997. Cost of goods sold decreased 4.9%, or $12.3 million, from $250.6 million in fiscal year 1996 to $238.3 million in fiscal year 1997 primarily due to a decrease in revenues. Selling, General, and Administrative Expenses. SG&A decreased from 27.4% of revenues in fiscal year 1996 to 26.6% of revenues in fiscal year 1997. This decrease, which amounted to $7.5 million, was attributable primarily to a decrease in payroll expense of $4.9 million. In addition, decreases in depreciation and administrative expense were experienced, partially offset by an increase in bad debts. Interest Expense, Net. Interest expense, net was 1.4% of revenues in fiscal year 1996 and 1.9% of revenues in fiscal year 1997. Interest expense was $5.2 million for fiscal year 1996 as compared to $6.5 million for fiscal year 1997. 25 <PAGE> 1744 Income before Income Taxes. Income before income taxes increased $18.2 million from $10.4 million, or 2.8% of revenues in fiscal year 1996, to $28.6 million, or 8.2% of revenues in fiscal year 1997. This increase is primarily attributable to the gain of $19.2 million on the sale of property and fixtures of the closed stores in Florida and Georgia which was recognized in fiscal year 1997. Net Income. Net income increased $12.1 million to 5.4% of revenues in fiscal year 1997 compared to 1.9% of revenues in fiscal year 1996. This increase is primarily attributable to the gain on sale of property and fixtures discussed above. This gain was partially offset by an increase in interest expense, net of $1.4 million. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 1, 1996 AND JANUARY 31, 1995 Revenues. The Company's revenues in fiscal year 1996 decreased by 2.5%, or $9.5 million, from $374.5 million in fiscal year 1995 to $365.0 million in fiscal year 1996. Adjusting for the impact of the additional days in fiscal year 1996, comparable store revenues decreased 1.6%. A very solid revenues increase was experienced by the Wilmington, North Carolina store offset by decreases in revenues at the Leesburg Lakeland Square and Gainesville, Florida stores. Significant revenue decreases amounting to $9.2 million were contributed by the closed stores. Cost of Goods Sold. As a percentage of revenues, cost of goods sold decreased slightly from 68.8% in fiscal year 1995 to 68.7% in fiscal year 1996. Cost of goods sold decreased 2.7%, or $7.0 million, from $257.6 million in fiscal year 1995 to $250.6 million in fiscal year 1996 primarily due to a decrease in revenues. Selling, General, and Administrative Expenses. SG&A increased from 27.1% of revenues in fiscal year 1995 to 27.4% of revenues in fiscal year 1996. However, SG&A decreased $1.6 million from fiscal year 1995 to fiscal year 1996. This decrease was attributable primarily to decreases in payroll and administrative expense, offset partially by a decrease in finance charge income. Interest Expense, Net. Interest expense, net was 1.5% of revenues in fiscal year 1995 and 1.4% of revenues in fiscal year 1996. Interest expense was $5.5 million for fiscal year 1995 as compared to $5.2 million for fiscal year 1996. Income before Income Taxes. Income before income taxes was 2.5% of revenues in fiscal year 1995 as compared to 2.8% of revenues in fiscal year 1996. Net Income. Net income decreased $0.6 million to 1.9% of revenues in fiscal year 1996 compared to 2.0% of revenues in fiscal year 1995. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenues, operating income, and net income. The highest revenue period for the Company is the fourth quarter which includes the Christmas selling season. A disproportionate amount of the Company's revenues and a substantial amount of the Company's operating and net income are realized during the fourth quarter. If for any reason the Company's revenues were below seasonal norms during the fourth quarter, the Company's annual results of operations could be adversely affected. The Company's inventory levels generally reach their highest in anticipation of increased revenues during these months, The following table illustrates the seasonality of revenues by quarter as a percentage of the full year for the fiscal years indicated. <TABLE> <CAPTION> 1995 1996 1997 ---- ---- ---- <S> <C> <C> <C> First quarter............................................... 22.5% 22.0% 23.5% Second quarter.............................................. 21.8 21.8 22.0 Third quarter............................................... 22.6 22.6 22.7 Fourth quarter.............................................. 33.1 33.6 31.8 </TABLE> The Company's quarterly results of operations could also fluctuate significantly as a result of a variety of factors, including the timing of new store openings and remodelings. 26 <PAGE> 1745 LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash on hand, cash flow from operations, and borrowings under credit facilities. During the nine months ended November 1, 1997, net cash provided by operations was $3.9 million, compared to net cash used by operations of $10.2 million during the same period in 1996. Such increase in cash provided by operations was attributable to an increase in net income (excluding the gain on sale of property and equipment) for the nine months ended November 1, 1997 combined with less additional investment in inventory. In fiscal year 1997, the Company had sufficient cash flows from operations and credit facilities to fund its working capital needs, capital expenditures, and equity purchases. Net cash provided (used) by operations was $18.1 million, $21.2 million, and $(0.4) million for the 1995, 1996, and 1997 fiscal years, respectively. Investing activities included capital expenditures, primarily for new, relocated and remodeled stores; purchases and sales of equity investments; and the purchases and sales of property and equipment related to store openings and closings. During the fiscal year ended February 1, 1997, the Company purchased stock in affiliated companies from several major stockholders for $54.1 million. Capital expenditures, primarily for new and remodeled stores, amounted to $4.0 million in the first nine months of fiscal year 1998 and $9.1 million in the comparable period in fiscal year 1997. Capital expenditures amounted to $4.2 million, $7.8 million, and $12.7 million for the 1995, 1996, and 1997 fiscal years, respectively. In fiscal year 1995, four stores were closed and the Lumberton Outlet opened. In fiscal year 1996, 3 stores were remodeled and a new regional office was completed; the Orlando Colonial store closed. In fiscal year 1997, the new store at Wilmington Landfall Mall was opened adding 32,976 square feet and the Gainesville Oaks Mall, Kingston and Goldsboro stores were remodeled. In addition, in fiscal year 1997, five stores were closed. The Company operated 46, 46, and 40 department stores, respectively for the 1995, 1996 and 1997 fiscal years. Stores are strategically opened and closed to allow the Company to focus on its most productive and profitable markets. Financing activities included payments or additional borrowings on credit facilities. The Company's total indebtedness at November 1, 1997 was $103.7 million, comprised of $34.4 million of current maturities of long-term debt and short-term borrowings and $69.3 of long-term debt. Of the $103.7 million of total indebtedness, $94.2 million was variable rate debt based on LIBOR, $2.1 million was variable rate debt based on the secondary CD rate and $7.4 million was fixed-rate. The Company has entered into interest rate swap agreements with various financial institutions to manage the exposure to changes in interest rates on its LIBOR based indebtedness. IMPACT OF INFLATION While it is difficult to determine the precise effects of inflation, management does not believe inflation had a material impact on the consolidated financial statements for the periods presented. BUSINESS OF THE COMPANY General. The Company operates 17 retail department stores in the following locations in North Carolina: Southgate Mall in Elizabeth City, Cross Creek Mall, Eutaw Village Shopping Center, and Tallywood Shopping Center in Fayetteville, Berkeley Mall in Goldsboro, Dare Center in Kill Devil Hills, Vernon Park Mall in Kinston, Parkway Plaza in Lexington, Scotland Crossing in Laurinburg, Biggs Park in Lumberton, Golden East Crossing in Rocky Mount, Pinecrest Plaza in Southern Pines, Washington Square Mall in Washington, White's Crossing in Whiteville, Independence Mall and Landfall Shopping Center in Wilmington, and Hanes Mall in Winston-Salem. The stores in Wilmington are managed out of the Nipper group office in Summerville, South Carolina. The stores in Winston-Salem and Lexington are managed out of the Huffstetler group office in Greensboro, North Carolina. The remaining stores are managed out of the Howard group office in Fayetteville, North Carolina. The Company's stores operate in a manner consistent 27 <PAGE> 1746 with the business of the Belk Companies described in the Proxy Statement/Prospectus. The Company also owns and operates the Howard group office and operates a distribution center in a leased facility in Fayetteville. The Company also owns 6.8 acres in Fayetteville which it is holding for future development. The Howard group office provides buying, advertising, accounting, personnel and other services to the stores in the Howard group area and the distribution center provides receiving, marking and distribution services to the stores in the Howard group area. The Company closed its store at Park Hill Mall in Tarboro, North Carolina in January, 1998. The Company also has one wholly owned subsidiary, Belk Investment Co. In addition, the Company owns more then 50% of the capital stock of Belk-Lindsey Stores, Inc., Belk's Department Store of Mount Airy, North Carolina, Incorporated, Belk of Statesboro, Ga., Inc., and Parks-Belk Company of Clarksville, Tennessee. In addition, the Company owns approximately one-third of the capital stock of Belk Stores Services, Inc. Belk-Lindsey Stores, Inc., Belk's Department Store of Mount Airy, North Carolina, Incorporated, Belk of Statesboro, Ga., Inc., and Parks-Belk Company of Clarksville, Tennessee operate retail stores in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. Belk Stores Services, Inc. provides various administrative services to the Belk Companies. The services provided include: accounts payable and payroll services, merchandise buying, sales promotion, real estate management, store planning, employee benefits, training, loss prevention, management information services and legal, tax and accounting services. Facilities. The Company operates 17 stores, of which 11 are leased under long term-leases and six are owned by the Company. The leases have termination dates ranging from 1999 through 2009. The leases for the Southgate Mall store in Elizabeth City and the Tallywood Shopping Center store expire in 1999. The Company has options to renew the Southgate Mall lease through 2009. As for the Tallywood Shopping Center lease, the Company believes that renewal options at market rates will be available. The floor area of the leased buildings ranges from 32,000 to 104,000 square feet. The floor area of the owned buildings ranges from 58,000 to 236,000 square feet. The Company believes the facilities are adequate to meet its current needs, with the exception of the Cross Creek Mall store in Fayetteville. The Company's Board has approved a remodeling of the Cross Creek Mall store for 1998. The Company also owns an office building in downtown Charlotte that is leased to the Pennell group. In addition, the Company owns certain parking lots in downtown Charlotte. Competition. Specific competitors in the Company's markets include Dillard, Hecht's, Sears, Penney and Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 28 <PAGE> 1747 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(f)(g)(h)..................................... 537,397.125 53.2% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(e)(g)(h)(i)........................................... 317,166.5 31.4% H. W. McKay Belk (Director and Executive Officer) (b)(e)(g)(h)(j)........................................... 315,337.5 31.2% John R. Belk (Director and Executive Officer) (b)(e)(g)(h)(k)........................................... 315,196.5 31.2% Sarah Belk Gambrell (Director) (f).......................... 171,695.625 17.0% David Belk Cannon (Director) (o)............................ 26,316.000 2.6% James K. Glenn, Jr. (Director) (n).......................... 34,632.000 3.4% W. B. Beery, III (Director)................................. 2,669.000 * Leroy Robinson (b)(e)....................................... 150,187.500 14.9% Katherine McKay Belk (b)(e)(m).............................. 171,334.000 17.0% Katherine Belk Morris (b)(e)(l)............................. 165,902.250 16.4% Troy M. Howard (Executive Officer).......................... 0 * Pete Huffstetler (Executive Officer)........................ 0 * Thomas A. Nipper (Executive Officer)........................ 0 * Lars Petersen (Executive Officer)........................... 0 * Bob Webster (Executive Officer)............................. 0 * Thomas M. Belk, Trustee U/A dated September 15, 1993........ 136,692.5 13.5% J. V. Properties............................................ 91,368 9.0% All Directors and Executive Officers as a group (30 persons).................................................. 808,267 80.0% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P. O. Box 2736, Winston-Salem, N.C. 27102; W. B. Beery, III -- 1919 Brookhaven Road, Wilmington, N.C. 28403; Troy M. Howard -- 4525 Camp Ground Road, Fayetteville, N.C. 28314; Pete Huffstetler -- 1-104 Carolina Circle Mall, Greensboro, N.C. 27405; Thomas A. Nipper, Lars Petersen, Bob Webster -- 200 Marymeade Drive, Summerville, S.C. 29483; J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 22,478 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 13,495 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. 29 <PAGE> 1748 Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Includes 839 shares held by Mary Claudia, Inc. of which John M. Belk is the majority shareholder. (d) Includes 356 shares held by Claudia Watkins Belk Grantor Trust dated 2/23/96, and 947.375 shares held by Mary Claudia Belk Irrevocable Trust dated 1/4/94. Claudia W. Belk, Trustee, is John M. Belk's wife. (e) Includes 136,692.5 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (f) Includes 12,087 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (g) Includes 2,741 shares held by Belk Brothers of Monroe, North Carolina, Incorporated, 995 shares held by Belk-Harry Company, 2,107 shares held Belk's Department Store of Asheville, North Carolina, Incorporated, 469 shares held by Belk Department Store of Edenton, N.C., Inc., 46,726.25 shares held by Belk Finance Company, and 5,536 shares held by Matthews-Belk Company, which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under the authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (h) Includes 91,368 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, having voting and investment power with respect to such shares. (i) Includes 3,400 shares held by Thomas M. Belk, Jr. as custodian for his minor children, and 1,720 shares are held by custodian for the minor children of his brother, H. W. McKay Belk. (j) Includes 3,145 shares held by H. W. McKay Belk as custodian for his minor children. (k) Includes 2,339 shares held by John R. Belk as custodian for his minor children. (l) Includes 3,439 shares held by Katherine Belk Morris as custodian for her minor children. (m) Includes 4,459 shares held by Katherine M. Belk as custodian for her minor grandchildren. (n) Includes 17,448 shares held by James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox, 4,580 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al. and 9,161 shares held by John Belk Stevens Trust U/W ITEM III, Section B f/b/o Mary S. Whelchel. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (o) Includes 8,079 shares held by Residuary Trust U/W Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. 30 <PAGE> 1749 INDEX TO HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Report of KPMG Peat Marwick LLP, Independent Auditors....... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Income........................... F-4 Consolidated Statements of Shareholders' Equity............. F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7 </TABLE> F-1 <PAGE> 1750 INDEPENDENT AUDITORS' REPORT The Board of Directors of Belk Enterprises, Inc., and Subsidiaries: We have audited the accompanying consolidated balance sheet of Belk Enterprises, Inc., and Subsidiaries as of February 1, 1997, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Belk Enterprises, Inc., and Subsidiaries at February 1, 1997 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," during fiscal year 1997. KPMG Peat Marwick LLP Charlotte, North Carolina November 14, 1997 F-2 <PAGE> 1751 BELK ENTERPRISES, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents............................... $ 14,022,137 $ 16,034,982 $ 4,493,635 Accounts receivable, net................................ 56,846,153 61,139,946 58,288,599 Merchandise inventory................................... 76,676,096 76,348,212 87,029,218 Prepaid income taxes.................................... -- -- 2,466,545 Receivables from affiliates............................. 50,593,033 74,168,408 45,027,190 Deferred income taxes................................... 1,238,153 711,366 633,601 Prepaid expenses and other current assets............... 4,307,873 3,334,808 1,912,023 ------------ ------------ ------------ Total current assets...................................... 203,683,445 231,737,722 199,850,811 Deferred income taxes..................................... 1,696,535 1,073,543 956,365 Investments in unconsolidated entities.................... 11,588,145 72,371,037 71,887,566 Investments............................................... 12,862,975 22,048,520 21,059,248 Property and equipment, net............................... 64,427,750 64,908,069 62,674,728 Other noncurrent assets................................... 2,693,595 2,338,977 3,336,741 ------------ ------------ ------------ Total assets.............................................. $296,952,445 $394,477,868 $359,765,459 ============ ============ ============ LIABILITIES, DEFERRED INCOME, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable........................................... $ 1,134,726 $ 22,434,726 $ 23,254,726 Accounts payable........................................ 19,048,090 21,593,689 23,323,995 Accrued expenses........................................ 9,111,617 8,996,880 10,098,578 Payables to affiliates.................................. 49,465,020 63,870,533 36,777,330 Accrued income taxes.................................... 193,560 1,451,800 -- Current installments of long-term debt and capital lease obligations........................................... 11,177,072 13,396,733 11,155,795 ------------ ------------ ------------ Total current liabilities................................. 90,130,085 131,744,361 104,610,424 Long-term debt and capital lease obligations, excluding current installments.................................... 43,290,099 78,000,513 69,327,652 Deferred compensation..................................... 9,418,636 8,222,186 8,467,266 Other noncurrent liabilities.............................. 1,261,155 1,526,657 1,731,291 ------------ ------------ ------------ Total liabilities......................................... 144,099,975 219,493,717 184,136,633 ------------ ------------ ------------ Deferred income........................................... 1,123,439 1,395,457 1,245,721 ------------ ------------ ------------ Minority interest......................................... 22,947,119 27,721,867 28,061,915 ------------ ------------ ------------ Shareholders' equity: Common stock; $1 par value; authorized 1,500,000 shares; issued and outstanding 1,009,973 shares............... 1,009,973 1,009,973 1,009,973 Retained earnings....................................... 127,403,385 144,222,644 144,569,735 Net unrealized gains on investments..................... 368,554 634,210 741,482 ------------ ------------ ------------ Total shareholders' equity................................ 128,781,912 145,866,827 146,321,190 ------------ ------------ ------------ Total liabilities, deferred income, minority interest and shareholders' equity.................................... $296,952,445 $394,477,868 $359,765,459 ============ ============ ============ </TABLE> See accompanying notes to consolidated financial statements. F-3 <PAGE> 1752 BELK ENTERPRISES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED ------------------------------------------ --------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ------------ ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Revenues................... $374,457,278 $365,006,555 $347,885,356 $236,038,169 $235,450,711 Cost of goods sold (including occupancy and buying expenses)......... 257,579,601 250,587,410 238,273,497 162,932,973 160,051,021 Selling, general and administrative expenses................. 101,620,924 99,977,203 92,460,215 68,184,614 64,456,859 Impairment charges......... -- -- 2,124,660 2,124,660 -- ------------ ------------ ------------ ------------ ------------ Income from operations..... 15,256,753 14,441,942 15,026,984 2,795,922 10,942,831 Interest expense, net...... (5,542,153) (5,186,160) (6,546,986) (4,288,188) (6,123,674) Dividend income............ 499,230 556,615 535,161 529,390 568,963 Gain (loss) on sale of property and equipment... (539,964) 190,220 19,253,437 19,237,793 10,757 Gain (loss) on sale of investments.............. -- 86,511 46,447 46,447 (1,890) Loss on investment......... -- -- -- -- (1,147,267) Other, net................. (324,147) 302,122 242,203 15,489 (295,751) ------------ ------------ ------------ ------------ ------------ Income before income taxes, equity in earnings of unconsolidated entities and minority interest.... 9,349,719 10,391,250 28,557,246 18,336,853 3,953,969 Income taxes............... 3,220,925 3,471,783 10,953,913 6,973,000 1,399,000 ------------ ------------ ------------ ------------ ------------ Income before equity in earnings of unconsolidated entities and minority interest.... 6,128,794 6,919,467 17,603,333 11,363,853 2,554,969 Equity in earnings (loss) of unconsolidated entities, net of income taxes.................... 823,020 271,137 6,736,637 (79,325) 101,716 Deduct (add) minority interest in earnings (loss) of subsidiaries... (497,829) 317,305 5,401,119 4,294,576 441,144 ------------ ------------ ------------ ------------ ------------ Net income................. $ 7,449,643 $ 6,873,299 $ 18,938,851 $ 6,989,952 $ 2,215,541 ============ ============ ============ ============ ============ Earnings per share......... $ 7.38 $ 6.81 $ 18.75 $ 6.92 $ 2.19 ============ ============ ============ ============ ============ Weighted average shares.... 1,009,973 1,009,973 1,009,973 1,009,973 1,009,973 ============ ============ ============ ============ ============ </TABLE> See accompanying notes to consolidated financial statements. F-4 <PAGE> 1753 BELK ENTERPRISES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY <TABLE> <CAPTION> NET UNREALIZED COMMON RETAINED GAINS ON STOCK EARNINGS INVESTMENTS TOTAL ---------- ------------ ----------- ------------ <S> <C> <C> <C> <C> Balance at February 1, 1994 (unaudited)...... $1,009,973 $116,367,052 $ -- $117,377,025 Unrealized gains on investments, net of income taxes (unaudited)................... -- 257,479 257,479 Cash dividends (unaudited)................... -- (1,615,957) -- (1,615,957) Net income (unaudited)....................... -- 7,449,643 -- 7,449,643 Other (unaudited)............................ -- (166,877) -- (166,877) ---------- ------------ -------- ------------ Balance at January 31, 1995 (unaudited)...... 1,009,973 122,033,861 257,479 123,301,313 Unrealized gains on investments, net of income taxes (unaudited)................... -- -- 111,075 111,075 Cash dividends (unaudited)................... -- (1,767,453) -- (1,767,453) Net income (unaudited)....................... -- 6,873,299 -- 6,873,299 Other (unaudited)............................ -- 263,678 -- 263,678 ---------- ------------ -------- ------------ Balance at February 3, 1996.................. 1,009,973 127,403,385 368,554 128,781,912 Unrealized gains on investments, net of income taxes............................... -- -- 179,352 179,352 Equity in net unrealized gains on investments held by unconsolidated entities............ -- -- 86,304 86,304 Cash dividends............................... -- (1,868,450) -- (1,868,450) Net income................................... -- 18,938,851 -- 18,938,851 Other........................................ -- (251,142) -- (251,142) ---------- ------------ -------- ------------ Balance at February 1, 1997.................. 1,009,973 144,222,644 634,210 145,866,827 Unrealized gains on investments, net of income taxes (unaudited)................... -- -- 98,449 98,449 Equity in net unrealized gains on investments held by unconsolidated entities (unaudited)................................ -- -- 8,823 8,823 Cash dividends (unaudited)................... -- (1,868,450) -- (1,868,450) Net income (unaudited)....................... -- 2,215,541 -- 2,215,541 ---------- ------------ -------- ------------ Balance at November 1, 1997 (unaudited)...... $1,009,973 $144,569,735 $741,482 $146,321,190 ========== ============ ======== ============ </TABLE> See accompanying notes to consolidated financial statements. F-5 <PAGE> 1754 BELK ENTERPRISES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- -------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ------------ ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Cash flows from operating activities: Net income................................... $ 7,449,643 $ 6,873,299 $18,938,851 $ 6,989,952 $ 2,215,541 Adjustments to reconcile net income to net cash provided (used) by operating activities: Deferred income taxes........................ (1,149,968) (157,613) 1,149,779 475,000 132,000 Deferred income.............................. -- 220,753 272,018 108,180 (149,736) Depreciation and amortization................ 9,561,095 9,379,909 8,408,129 6,146,553 6,243,386 Impairment of long-lived assets.............. -- -- 2,124,660 2,124,660 -- Minority interest in consolidated subsidiaries............................... (497,829) 317,305 5,401,119 4,294,576 441,144 Loss (gain) on sale of property and equipment.................................. 539,964 (190,220) (19,253,437) (19,237,793) (10,757) Loss (gain) on sale of investments........... -- (86,511) (46,447) (46,447) 1,890 Loss on investment........................... -- -- -- -- 1,147,267 Equity in (earnings) loss of unconsolidated entities, net of income taxes.............. (823,020) (271,137) (6,736,637) 79,325 (101,716) (Increase) decrease in: Accounts receivable, net................... 4,327,507 1,504,576 (4,580,572) (314,973) 2,851,347 Merchandise inventory...................... 2,237,954 3,161,904 (267,455) (14,718,522) (10,681,006) Receivables from affiliates................ (7,639,591) (12,196,641) (23,575,375) (3,663,915) 29,141,218 Prepaid income taxes....................... -- -- -- (668,479) (2,466,545) Prepaid expenses and other assets.......... 802,432 1,044,073 1,308,563 656,977 425,021 Increase (decrease) in: Accounts payable and accrued expenses...... (166,144) (505,071) 2,557,828 3,611,923 2,832,004 Payables to affiliates..................... 2,595,718 10,735,939 13,580,394 5,021,907 (27,093,203) Accrued income taxes....................... (227,434) (133,272) 1,258,240 (193,560) (1,451,800) Deferred compensation and other liabilities.............................. 1,112,568 1,492,281 (930,194) (879,801) 449,714 ----------- ----------- ----------- ------------ ----------- Net cash provided (used) by operating activities................................... 18,122,895 21,189,574 (390,536) (10,214,437) 3,925,769 ----------- ----------- ----------- ------------ ----------- Cash flows from investing activities: Dividends received from unconsolidated entities................................... 45,329 79,354 207,756 207,756 530,950 Purchases of investments..................... (494,834) (211,359) (54,064,398) (33,785,074) (38,036) Purchases of property and equipment.......... (4,234,732) (7,755,066) (12,658,218) (9,063,727) (4,025,369) Proceeds from sale of property and equipment.................................. 693,690 110,161 20,577,821 20,228,937 26,081 Proceeds from sale of investments............ -- 283,884 200,939 200,939 1,507 ----------- ----------- ----------- ------------ ----------- Net cash provided (used) by investing activities................................... (3,990,547) (7,493,026) (45,736,100) (22,211,169) (3,504,867) ----------- ----------- ----------- ------------ ----------- Cash flows from financing activities: Net proceeds from (payments on) lines of credit..................................... (960,000) (600,000) 21,300,000 18,049,999 820,000 Proceeds from issuance of long-term debt..... 6,000,000 -- 73,050,000 62,100,000 -- Principal payments on long-term debt and capital lease obligations.................. (13,274,534) (13,468,913) (44,342,069) (49,673,901) (10,913,799) Dividends paid............................... (1,615,957) (1,767,453) (1,868,450) (1,868,450) (1,868,450) ----------- ----------- ----------- ------------ ----------- Net cash provided (used) by financing activities................................... (9,850,491) (15,836,366) 48,139,481 28,607,648 (11,962,249) ----------- ----------- ----------- ------------ ----------- Net increase (decrease) in cash and cash equivalents.................................. 4,281,857 (2,139,818) 2,012,845 (3,817,958) (11,541,347) Cash and cash equivalents at beginning of period....................................... 11,880,098 16,161,955 14,022,137 14,022,137 16,034,982 ----------- ----------- ----------- ------------ ----------- Cash and cash equivalents at end of period..... $16,161,955 $14,022,137 $16,034,982 $ 10,204,179 $ 4,493,635 =========== =========== =========== ============ =========== Supplemental disclosures of cash flow information: Interest paid.................................. $ 7,797,182 $ 7,933,279 $ 5,685,765 $ 2,862,813 $ 6,380,474 Income taxes paid.............................. 5,251,412 4,770,515 9,478,180 7,076,480 5,123,850 Supplemental schedule of noncash investing and financing activities: Increase in investments in unconsolidated entities and long-term debt.................. -- -- $ 8,222,144 $ 13,838,728 -- </TABLE> See accompanying notes to consolidated financial statements. F-6 <PAGE> 1755 BELK ENTERPRISES, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The consolidated financial statements of Belk Enterprises, Inc. and Subsidiaries, (hereafter referred to as "the Company") include the following majority owned subsidiaries: Belk of Statesboro, Ga., Inc. and Subsidiary Belk's Department Store of Mount Airy, North Carolina, Incorporated Belk-Lindsey Stores, Inc. Parks-Belk Company of Clarksville, Tennessee Belk Investment Company All significant intercompany accounts and transactions have been eliminated in consolidation. The Company operates retail department stores in North Carolina, Florida, Georgia, Tennessee, and South Carolina. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR Starting in fiscal year 1996, the Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1996 and 1997 ended on February 3, 1996 and February 1, 1997 and included 368 and 365 days, respectively. Fiscal year 1995 ended on Tuesday, January 31, 1995 and included 364 days. UNAUDITED FINANCIAL STATEMENTS The consolidated financial statements as of February 3, 1996 and for the years ended January 31, 1995 and February 3, 1996 and as of and for the periods ended November 2, 1996 and November 1, 1997 are unaudited. In the opinion of management, such consolidated financial statements reflect all adjustments necessary to present fairly the Company's financial position and results of operations and cash flows, but the consolidated financial statements for the interim periods ended November 2, 1996 and November 1, 1997 are not necessarily indicative of the results of operations for a full fiscal year. REVENUES Revenues include sales from retail operations and leased departments, net of returns. COSTS OF GOODS SOLD Cost of goods sold includes occupancy and buying expenses. Occupancy expenses include rent, utilities and real estate taxes. Buying expenses include the payroll and travel expenses associated with the buying function. MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market as determined by the retail inventory method. FINANCE CHARGES Selling, general and administrative expenses in the consolidated statements of income are reduced by finance charge revenue arising from customer accounts receivable. Finance charge revenue amounted to approximately $7,920,000, $7,087,000 and $7,667,000 in fiscal years 1995, 1996 and 1997, respectively. F-7 <PAGE> 1756 BELK ENTERPRISES, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PROPERTY AND EQUIPMENT, NET Property and equipment owned by the Company is stated at cost less accumulated depreciation. Property and equipment leased by the Company under capital leases is stated at an amount equal to the present value of the minimum lease payments less accumulated amortization. Depreciation and amortization are provided utilizing straight-line and various accelerated methods over the shorter of estimated asset lives or related lease terms. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement bases and the respective tax bases of the assets and liabilities and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. PRE-OPENING COSTS Store pre-opening costs are expensed as incurred. CASH EQUIVALENTS Cash equivalents include liquid investments with an original maturity of 90 days or less. ADVERTISING Advertising costs are expensed as incurred and amounted to $11,732,086, $11,654,668 and $11,562,024 in fiscal years 1995, 1996 and 1997, respectively. DERIVATIVE FINANCIAL INSTRUMENTS The Company utilizes various derivative financial instruments (interest rate swap agreements) to manage the interest rate risk associated with its borrowings. The counterparties to these instruments are major financial institutions. These agreements are used to reduce the potential impact of increases in interest rates on variable rate long-term debt. The differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to interest expense. The fair values of the swap agreements are not recognized in the consolidated financial statements. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF The Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," during the first quarter of fiscal year 1997. This F-8 <PAGE> 1757 BELK ENTERPRISES, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (3) ACCOUNTS RECEIVABLE, NET Customer receivables arise primarily under open-end revolving credit accounts used to finance purchases of merchandise from the Company. These accounts have various billing and payment structures, including varying minimum payment levels and finance charge rates. Installments of deferred payment accounts receivable maturing after one year are included in current assets in accordance with industry practice. The Company provides an allowance for doubtful accounts which is determined based on a number of factors, including the risk characteristics of the portfolio, historical charge-off patterns and management judgment. Accounts receivable, net consists of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ------------ ------------ ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Customer receivables............................ $56,926,594 $61,602,187 $59,273,044 Other........................................... 1,346,740 1,131,187 998,766 Less allowance for doubtful accounts............ (1,427,181) (1,593,428) (1,983,211) ----------- ----------- ----------- Accounts receivable, net........................ $56,846,153 $61,139,946 $58,288,599 =========== =========== =========== </TABLE> Changes in allowance for doubtful accounts are as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Balance, beginning of period..................... $1,533,720 $1,487,501 $1,427,181 $1,427,181 $1,593,428 Charged to expense........... 1,576,301 1,479,075 2,275,345 1,480,757 2,310,889 Net uncollectible balances written off................ (1,622,520) (1,539,395) (2,109,098) (1,485,857) (1,921,106) ---------- ---------- ---------- ---------- ---------- Balance, end of period....... $1,487,501 $1,427,181 $1,593,428 $1,422,081 $1,983,211 ========== ========== ========== ========== ========== </TABLE> (4) INVESTMENTS IN UNCONSOLIDATED ENTITIES The Company's investments in the following unconsolidated entities include the unamortized excess of the Company's investment over its equity in the investments' net assets, if applicable. The excess was $548,000 at February 1, 1997, and is being amortized on a straight-line basis over a period of 15 years. F-9 <PAGE> 1758 BELK ENTERPRISES, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The investments in unconsolidated entities and percentage owned are: <TABLE> <S> <C> Belk's Department Store, Incorporated of Aiken, South Carolina.................................................. 26.7% Belk's Department Store of Boone, North Carolina, Incorporated.............................................. 28.8 Belk Brothers Company and Subsidiaries...................... 26.6 Belk's Department Store of Columbia, South Carolina, Incorporated.............................................. 36.3 Belk of Miss., Inc.......................................... 22.2 Belk of Dawson, Ga., Inc.................................... 21.6 Belk Department Store of Eden, N.C., Inc.................... 22.8 Belk Department Store of Edenton, N.C., Inc................. 25.1 Belk Department Store of Elkin, N.C., Inc................... 25.3 Belk's Department Store of Florence, S.C., Incorporated..... 25.4 Belk Department Store of Greenville, N.C., Inc.............. 20.7 Belk of Lawrenceville, Ga., Inc............................. 21.6 Belk of Virginia, Inc. and Subsidiaries..................... 40.6 Belk of Thomaston, Ga., Inc. and Subsidiary................. 41.6 Belk of Thomasville, N.C., Inc.............................. 28.3 Belk of Thomson, Ga., Inc................................... 30.8 Belk of Washington, Ga., Inc................................ 23.2 Belk Department Store of Waynesville, N.C., Inc............. 37.7 Belk of Canton, Ga., Inc.................................... 24.7 </TABLE> Condensed combined financial information of the unconsolidated entities is as follows: <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Current assets............................... $157,927,992 $155,905,182 $266,587,263 Noncurrent assets............................ 139,666,899 233,295,082 313,645,412 Current liabilities.......................... 52,491,215 149,054,703 191,313,687 Noncurrent liabilities....................... 94,742,451 82,901,207 141,466,865 Shareholders' equity ........................ 150,361,225 157,244,354 247,452,123 Revenues..................................... 373,189,328 367,937,180 682,269,208 Net income................................... 10,257,625 9,119,486 57,579,336 </TABLE> (5) INVESTMENTS In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Investments in Debt and Equity Securities," the Company classifies all equity securities with a readily determinable market value as available-for-sale securities. Details of the equity investments in available-for-sale securities are as follows: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Cost................................................. $ 6,117 $ 6,117 $ 6,117 Gross unrealized gains............................... 605,695 900,269 1,061,661 -------- -------- ---------- Fair value of securities............................. $611,812 $906,386 $1,067,778 ======== ======== ========== </TABLE> Gains and losses on sales of securities are recognized when realized on a specific identification basis. Gross realized gains (losses) included in income at February 3, 1996, February 1, 1997 and November 1, 1997 were $86,511, $46,447 and $(1,890), respectively. F-10 <PAGE> 1759 BELK ENTERPRISES, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Investments in equity securities of closely held companies and securities that do not have readily determinable fair values are recorded at original cost when ownership is less than 20%. Any such investments owned 20% or more but not greater than 50% are accounted for on the equity method of accounting. Investments that were previously accounted for on the cost method may become qualified for use of the equity method. The carrying amount of those investments are adjusted to reflect the investor's share of the income, losses and dividends received from the investees. The Company owns 10.9% of TAGS Stores, LLC (TAGS) and, accordingly, accounts for its investment in TAGS on a cost basis. In September 1997, the managers and the advisory board of TAGS adopted a formal plan to liquidate its operation during the 1997 Christmas retailing season. During the nine months ended November 1, 1997 the Company reduced its investment in TAGS by $1,147,267 to the estimated net realizable value of its investment. (6) PROPERTY AND EQUIPMENT, NET Details of property and equipment are as follows: <TABLE> <CAPTION> ESTIMATED FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, LIVES 1996 1997 1997 --------- ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> Land................................ N/A $ 3,439,192 $ 3,375,261 $ 3,375,261 Buildings........................... 30-50 74,637,761 73,390,279 75,055,702 Furniture, fixtures and equipment... 5-7 61,865,269 63,582,415 65,015,017 Construction in progress............ N/A 1,915,052 1,021,061 1,423,749 ------------ ------------ ------------ 141,857,274 141,369,016 144,869,729 Less accumulated depreciation and amortization...................... (77,429,524) (76,460,947) (82,195,001) ------------ ------------ ------------ Property and equipment, net......... $ 64,427,750 $ 64,908,069 $ 62,674,728 ============ ============ ============ </TABLE> (7) ACCRUED EXPENSES Accrued expenses are comprised of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Salaries, wages and employee benefits............. $4,303,864 $3,517,555 $ 2,613,753 Interest.......................................... 285,609 1,969,875 1,713,075 Rent.............................................. 1,052,716 1,026,864 981,339 Taxes, other than income.......................... 997,580 621,500 1,267,218 Other............................................. 2,471,848 1,861,086 3,523,193 ---------- ---------- ----------- $9,111,617 $8,996,880 $10,098,578 ========== ========== =========== </TABLE> F-11 <PAGE> 1760 BELK ENTERPRISES, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (8) BORROWINGS Long-term debt, principally due to banks, and capital lease obligations consist of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> 7.5% unsecured notes payable in installments, through March 2000......................... $ -- $ 8,222,144 $ 6,166,608 Variable rate unsecured term loan payable in installments through October 2003; interest payable at 125 basis points above LIBOR (5.65% at November 1, 1997)................ -- 76,600,000 68,976,640 Unsecured term loan agreement with a related party, payable in installments through 2006, (interest payable at 100 basis points above secondary market 30 day CD rate)..... -- 2,147,022 2,147,022 Unsecured term loan agreements, (interest payable at 50 basis points above LIBOR).... 52,941,718 3,056,672 - Unsecured term loan agreement due 2002 (interest payable at 80 basis points above LIBOR)..................................... -- - 1,950,000 Capital lease obligations.................... 1,525,453 1,371,408 1,243,177 ------------ ------------ ------------ 54,467,171 91,397,246 80,483,447 Less current installments.................... (11,177,072) (13,396,733) (11,155,795) ------------ ------------ ------------ Long-term debt and capital lease obligations, excluding current installments............. $ 43,290,099 $ 78,000,513 $ 69,327,652 ============ ============ ============ </TABLE> The annual maturities of long-term debt and capital lease obligations over the next five years as of February 1, 1997 are $13,396,733, $11,158,852, $12,054,808, $12,427,856 and $12,748,011. The Company's term loan agreements contain, among other provisions and covenants, restrictions relating to the creation of additional funded debt, except as permitted, and the disposal, expansion or purchase of fixed assets, except as permitted. In addition, the Company must maintain at the end of any fiscal year a maximum ratio of consolidated debt to consolidated total tangible capital, as defined and a minimum consolidated tangible net worth, as defined. The Company must also maintain at the end of each fiscal quarter, a minimum fixed charge coverage ratio, as defined. The Company was in compliance with the provisions and covenants of the term loan agreements as of February 1, 1997. The covenants also include a restriction on dividend payments. The Company can only declare dividends from operating profits from the preceding fiscal year. At February 1, 1997, the Company had $125,283,793 of retained earnings unavailable for dividend payments. The Company is a guarantor on two term loan agreements with a bank for two other companies in the Belk organization totaling approximately $149 million as of February 1, 1997. The Company has entered into an interest rate swap agreement with a financial institution to manage the exposure to changes in interest rates on its LIBOR based indebtedness. The amount of indebtedness covered by the interest rate swap is $25 million through April 1999. At February 1, 1997, the Company has unsecured line of credit agreements totaling $51,150,000 with banks at interest rates quoted by the banks (which historically have been approximately 80 basis points above LIBOR). Amounts outstanding at February 3, 1996, February 1, 1997 and November 1, 1997 were $1,000,000, $22,300,000, and $23,120,000, respectively. F-12 <PAGE> 1761 BELK ENTERPRISES, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (9) LEASES The Company leases certain of its stores, warehouse facilities and equipment. The majority of these leases will expire over the next 10 years. The leases usually contain renewal options and provide for payment by the lessee of real estate and other expenses and, in certain instances, increased rentals based on percentages of sales. Future minimum lease payments under noncancelable leases as of February 1, 1997 were as follows: <TABLE> <CAPTION> FISCAL YEAR CAPITAL OPERATING - ----------- ---------- ----------- <S> <C> <C> 1998........................................................ $ 304,408 $ 3,950,619 1999........................................................ 304,408 3,707,902 2000........................................................ 304,408 3,418,559 2001........................................................ 304,408 3,208,955 2002........................................................ 304,408 3,163,710 After 2002.................................................. 304,408 19,676,164 ---------- ----------- Total....................................................... 1,826,448 $37,125,909 =========== Less imputed interest....................................... (455,040) ---------- Present value of minimum lease payments..................... 1,371,408 Less current portion........................................ (170,975) ---------- Obligation under capital lease, excluding current portion... $1,200,433 ========== </TABLE> Rental expense for all operating leases consists of the following: <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Buildings: Minimum rentals.................................. $4,625,436 $4,211,578 $4,329,000 Contingent rentals............................... 507,152 770,559 824,626 Equipment.......................................... 474,766 469,708 349,438 ---------- ---------- ---------- Total rental expense............................... $5,607,354 $5,451,845 $5,503,064 ========== ========== ========== </TABLE> Contingent rentals are determined on the basis of a percentage of sales in excess of stipulated minimums for certain store facilities. F-13 <PAGE> 1762 BELK ENTERPRISES, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (10) INCOME TAXES Federal and state income tax expense (benefit) was as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Current: Federal................... $3,276,493 $2,840,677 $ 8,288,942 $5,603,000 $1,073,000 State..................... 1,094,400 788,719 1,515,192 895,000 194,000 ---------- ---------- ----------- ---------- ---------- 4,370,893 3,629,396 9,804,134 6,498,000 1,267,000 Deferred: Federal................... (986,351) (52,619) 821,277 302,000 93,000 State..................... (163,617) (104,994) 328,502 173,000 39,000 ---------- ---------- ----------- ---------- ---------- (1,149,968) (157,613) 1,149,779 475,000 132,000 ---------- ---------- ----------- ---------- ---------- Income taxes................ $3,220,925 $3,471,783 $10,953,913 $6,973,000 $1,399,000 ========== ========== =========== ========== ========== </TABLE> A reconciliation between income taxes computed using the effective income tax rate and the federal statutory income tax rate of 34% is as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Income tax at the statutory federal rate.......... $3,178,904 $3,533,025 $ 9,995,036 State income taxes, net of federal income tax benefit......................................... 614,317 451,259 1,198,401 Other............................................. (572,296) (512,501) (239,524) ---------- ---------- ----------- Income taxes...................................... $3,220,925 $3,471,783 $10,953,913 ========== ========== =========== </TABLE> F-14 <PAGE> 1763 BELK ENTERPRISES, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred taxes based upon differences between the financial statement and tax bases of assets and liabilities and available tax carryforwards consists of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- (UNAUDITED) <S> <C> <C> Deferred tax assets: Benefit plan costs........................................ $3,895,481 $3,564,877 Tax carryovers............................................ 1,573,989 833,262 Inventory capitalization.................................. 666,711 696,692 Allowance for doubtful accounts........................... 533,710 606,693 Developer incentives...................................... 276,955 400,718 Capital leases............................................ 354,871 328,212 ---------- ---------- Gross deferred tax assets................................... 7,301,717 6,430,454 Less valuation allowance.................................... (812,413) (783,121) ---------- ---------- Net deferred tax assets..................................... 6,489,304 5,647,333 Deferred tax liabilities: Property and equipment.................................... 2,819,936 2,492,431 Prepaid pension costs..................................... 497,736 355,822 Investment securities..................................... 236,944 352,163 Other..................................................... -- 662,008 ---------- ---------- Gross deferred tax liabilities.............................. 3,554,616 3,862,424 ---------- ---------- Net deferred tax assets..................................... $2,934,688 $1,784,909 ========== ========== </TABLE> The change in the valuation allowance was an increase (decrease) of $18,501 and $(29,292) in the years ended February 3, 1996 and February 1, 1997, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the temporary differences becoming deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. At February 1, 1997, the Company has gross operating loss carryforwards for state income tax purposes of $13,556,000, offset by a gross valuation allowance of $13,052,000, which are available to offset future state taxable income, if any, through 2011. In addition, the Company has alternative minimum tax credit carry forwards of $25,000 which are available to reduce future federal regular income taxes, if any, over an indefinite period. (11) BENEFIT PLANS The Company participates in the Belk Pension Plan, a defined benefit multi-employer plan that covers substantially all of the employees of the Belk companies. Pension expense allocated to the Company was $367,667, $443,563 and $408,095 for fiscal years 1995, 1996 and 1997, respectively. Because the Belk Pension Plan is a multi-employer plan, allocation of plan assets to the Company is not practical. The Company also participates in the Belk Employees' Group Medical Plan that provides medical benefits to substantially all employees of the Belk companies. This Plan is "self-funded" for medical benefits through a 501(c)(9) Trust. The Company participates in the Group Life Insurance Plan that provides life insurance to its employees, and is fully insured through a contract issued by an insurance company. Contributions by the Company under the Belk Employees' Group Medical Plan and the Group Life Insurance Plan amounted to approximately $2,635,000, $2,597,000 and $2,608,000 in fiscal years 1995, 1996 and 1997, respectively. F-15 <PAGE> 1764 BELK ENTERPRISES, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company participates in the Belk Profit Sharing Plan, a contributory, defined contribution multi-employer plan that provides benefits for substantially all employees of the Belk companies. The costs of the plan generally represent 10% of profits, as defined, and amounted to $1,566,017, $1,252,218 and $1,319,964 in fiscal years 1995, 1996 and 1997, respectively. The Company participates in the Supplemental Executive Retirement Plan (SERP), a non-qualified defined benefit retirement plan that provides retirement and death benefits to certain qualified executives of the Company. Total SERP costs charged to operations were $642,722, $752,403 and $335,225, in fiscal years 1995, 1996 and 1997, respectively. The effective discount rate used in determining the net periodic SERP cost was 8.5% for fiscal years 1995 and 1996, and 7.25% for fiscal year 1997. Actuarial gains and losses are amortized over the average remaining service lives of the participants. Certain eligible employees also participate in a non-qualified Deferred Compensation Plan (DCP). Participants in the plan have elected to defer a portion of their regular compensation subject to certain limitations prescribed by the DCP. The Company is required to pay interest on the employees' deferred compensation at various rates between 9% and 15%. Total interest expense related to this plan and charged to operations was $651,958, $715,697 and $630,010, in fiscal years 1995, 1996 and 1997, respectively. The Company provides postretirement benefits to certain retired employees in the form of medical and life insurance premiums. The Company recorded approximately $372,000, $358,000 and $342,000 as selling, general and administrative expense in fiscal years 1995, 1996 and 1997, respectively. (12) RELATED PARTY TRANSACTIONS The Belk Center, Inc. services the Company's customer accounts receivable. The Company paid The Belk Center, Inc. approximately $3,939,000, $4,136,000 and $4,075,000 during 1995, 1996 and 1997, respectively, for these services. Various other selling, general, administrative and transaction processing services are provided by Belk Store Services, Inc. ("BSS"). The Company paid BSS approximately $7,242,000, $7,904,000 and $6,482,000 during 1995, 1996 and 1997, respectively, for these services, not including transaction processing services. The Company paid approximately $4,698,000, $4,973,000 and $5,118,000 during 1995, 1996 and 1997, respectively, for transaction processing fees. The Company had a demand deposit with an affiliated company at January 31, 1995, February 3, 1996 and February 1, 1997 of $9,100,000, $9,193,267 and $6,122,703, respectively, which is included in cash and cash equivalents in the accompanying consolidated balance sheets. The Company may participate in operational, investing and financing activities with other Belk companies. Receivables from and payables to affiliates within the consolidated entity have been eliminated. (13) FAIR VALUE OF FINANCIAL INSTRUMENTS For financial instruments which are short-term in nature, such as cash and cash equivalents, accounts receivable, receivables from affiliates, accounts payable, payables to affiliates, accrued expenses and lines of credit, carrying values approximate fair values. The carrying values of the Company's fixed and variable rate long-term debt and notes payable are reasonable estimates of fair value. The fair value of interest rate swap agreements is the estimated amount that the Company would pay to terminate the swap agreement, taking into account current credit worthiness of the swap counterparties. The fair value of these agreements was ($1,647,527) at November 1, 1997. The interest rate swap agreements have no carrying value. F-16 <PAGE> 1765 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 1766 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1767 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1768 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1769 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1770 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1771 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ------------- ------------ ------------ ------------ ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement......... $ 347,885,356 $ 18,938,851 $ 37,270,794 $ 45,678,923 $145,866,827 Adjustments to eliminate less than wholly-owned subsidiaries......... (137,111,162) (12,313,084) (21,523,198) (25,055,933) (44,240,353) Less: Leased sales.................. (5,091,457) -- -- -- -- ------------- ------------ ------------ ------------ ------------ Adjusted Shareholders' Statement.... $ 205,682,737 6,625,767 15,747,596 20,622,990 101,626,474 ============= ------------ ------------ ------------ ------------ Adjustments for non-operating items: Gain/loss on disposal of PP&E..... (213,405) (333,116) (333,116) Gain/loss on sale of securities... (29,756) (46,448) (46,448) Impairment loss................... -- -- -- Equity in earnings of unconsolidated subsidiaries..... -- -- -- Gain/loss on discontinued operations...................... -- -- -- Adjustment to tax expense......... -- -- -- ------------ ------------ ------------ Total non-operating items........... (243,161) (379,564) (379,564) ------------ ------------ ------------ Other Adjustments: Adjustment for dividends received from other Belk entities........ (480,565) (750,139) (750,139) -- Adjustment for ownership in other Belk entities................... -- -- -- (92,916,264) ------------ ------------ ------------ ------------ Per Model........................... $ 5,902,041 $ 14,617,893 $ 19,493,287 $ 8,710,210 ============ ============ ============ ============ COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents......... $ (16,034,980) Negative cash balances reclassified to accounts payable....................... -- Receivables from affiliates, net........................... -- Loans receivable from affiliates, net............... (27,991,442) Liabilities Notes payable................... 24,490,262 Current installments of long-term debt................ 11,131,672 Current portion of obligations under capital leases.......... 170,975 Payables to affiliates, net..... 19,442,192 Long-term debt, excluding current installments.......... 74,691,608 Obligations under capital leases, excluding current portion....................... 1,200,433 Loans payable to affiliates, net........................... -- ------------- Net debt (cash)..................... 87,100,720 Adjustments to eliminate less than wholly-owned subsidiaries......... 11,063,741 ------------- Per Model........................... $ 98,164,461 ============= </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1772 SUPPLEMENT NO. 41 <PAGE> 1773 BELK ENTERPRISES, INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: ,1998 --------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 41 <PAGE> 1774 BELK-MATTHEWS COMPANY OF CHERRYVILLE, N.C., INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Matthews Company of Cherryville, N.C., Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 27.9410 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 24,700 shares of New Belk Class A Common Stock which will represent approximately 0.0412% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1775 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1776 BELK-MATTHEWS COMPANY OF CHERRYVILLE, N.C., INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-MATTHEWS COMPANY OF CHERRYVILLE, N.C., INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Matthews Company of Cherryville, N.C., Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 27.9410 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1777 BELK-MATTHEWS COMPANY OF CHERRYVILLE, N.C., INCORPORATED SUPPLEMENT NO. 42 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 42 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-MATTHEWS COMPANY OF CHERRYVILLE, N.C., INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 1778 THE COMPANY The Company was incorporated as a North Carolina corporation in 1936. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 27.9410 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1779 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to share the risk associated with the uncertain prospects for the Company's store in its current location. The store is located in a relatively small market that is also close to larger markets with larger Belk stores and other competitors. The prospects for growth of the Company's store may be limited because of the size of its market and its close proximity to such competitors. The Merger would allow the Company to share with New Belk the risk associated with the Company's current market situation and to participate in the growth of other Belk stores located in markets with better growth prospects. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. 3 <PAGE> 1780 Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 2,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Transferee, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New 4 <PAGE> 1781 Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a 5 <PAGE> 1782 quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a 6 <PAGE> 1783 meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. 7 <PAGE> 1784 The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove 8 <PAGE> 1785 him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct 9 <PAGE> 1786 in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage 10 <PAGE> 1787 of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. 11 <PAGE> 1788 With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if the (i) shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. 12 <PAGE> 1789 Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. 13 <PAGE> 1790 A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. 14 <PAGE> 1791 Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- -------- -------- -------- --------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............... $755,919 $755,919 0.6 $(147,567) $601,119 EBITDA.................. 40,291 37,901 7 (147,567) 412,874 EBIT.................... 32,184 29,794 10 (147,567) 445,507 Net Income.............. 27,974 26,081 15 -- 391,215 Book Equity............. 545,467 545,262 1 -- 545,262 </TABLE> 15 <PAGE> 1792 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $N/A = $N/A -------- Total $N/A ======== Relative Operating Value of Company $601,119 Relative Operating Value of Other Companies Owned by Company + -- -------- Total Relative Value of Company = $601,119 ======== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 11.6831% X $601,119 = $ 70,229 Belk Enterprises, Inc. .1343 X 601,119 = 807 Mathews-Belk Company 9.0421 X 601,119 = 54,355 -------- Total $125,391 ======== Total Relative Value of Company $601,119 Total Relative Value of Company Owned by Other Belk Companies - 125,391 -------- Net Relative Value of Company = $475,728 ======== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $475,728 / $1,155,623,145 = .0412% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON APPLICABLE EXCHANGE SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) RATIO <C> <C> <C> <C> <C> <C> <C> (.0412% X 60,000,007) / 884 = 27.9410 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1793 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 25.04 Book value per share(2)................................... 488.33 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 26.52 Book value per share...................................... 353.79 </TABLE> - --------------- (1) Based on 1,117 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 1,117 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for New Belk Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1794 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 833 $ 780 $ 756 Net income.................................................. 37 13 28 Per common share Net income (loss)(1)...................................... 33.47 11.39 25.04 Dividends................................................. 25.00 25.00 15.00 Book value(2)............................................. 491.90 478.29 488.33 Total assets................................................ 602 602 616 Shareholders' equity........................................ 549 534 545 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $521 $513 Income from operations...................................... 5 5 </TABLE> - --------------- (1) Based on 1,117 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 1,117 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1795 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in downtown Cherryville, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Matthews group office in Gastonia, North Carolina. Facilities. The Company owns a portion of the store property and building, which contains 12,000 square foot of floor area. The Company leases the remaining portion of the store building. The Company has no lease renewal options remaining, and the Company is currently evaluating the prospects of continuing operations in this market. Competition. The Company's principal competitor is Wal-Mart in Lincolnton, North Carolina; but it also competes with larger Belk stores and other competitors in nearby Gastonia, Lincolnton and Shelby. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1796 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 402.0 36.0% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(c)(d)................................................. 290.0 26.0% H. W. McKay Belk (Director and Executive Officer) (a)(c)(d)................................................. 290.0 26.0% John R. Belk (Director and Executive Officer) (a)(c)(d)..... 290.0 26.0% Henderson Belk (Director) (b)............................... 50.0 4.5% Sarah Belk Gambrell (b)..................................... 135.5 12.1% David Belk Cannon (Director) (f)............................ 88.0 7.9% James K. Glenn, Jr. (Director) (e).......................... 93.0 8.3% Leroy Robinson (Director) (a)............................... 57.0 5.1% B. Frank Matthews, II (Director and Executive Officer) (g)(h).................................................... 139.5 12.5% Eugene Robinson Matthews (Director and Executive Officer)... 25.0 2.2% Katherine McKay Belk (a).................................... 57.0 5.1% Katherine Belk Morris (a)................................... 60.0 5.4% Elizabeth Matthews Welton Trust, Elizabeth Matthews Welton, Trustee U/A dated August 2, 1995.......................... 80.0 7.2% Annabelle Z. Royster (g).................................... 64.0 5.7% Milburn Investment company.................................. 57.0 5.1% J.V. Properties............................................. 130.5 11.7% Matthews-Belk Company....................................... 101.0 9.1% First Union National Bank of N.C., B. Frank Matthews, II and Annabelle Z. Royster, Co-Trustees under the will of J.H. Matthews, Jr. ............................................ 62.0 5.6% All Directors and Executive Officers as a group (10 persons).................................................. 748.0 67.0% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28210; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P.O. Box 2736, Winston-Salem, N.C. 27102; B. Frank Matthews, II, Eugene Robinson Matthews, Elizabeth Matthews Welton -- 2240 Remount Road, Gastonia, N.C. 28054; Annabelle Z. Royster -- 3621 Club Colony Drive West, Gastonia, N.C. 28052; Sara McDonald (NC1-002-07-13) NationsBank, N.A. Charlotte, N.C. 28255; Milburn Investment Company, J.V. Properties, Matthews-Belk Company -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 57 shares held by Milburn Investment Company, of which the Estate of Thomas M. Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas M. 20 <PAGE> 1797 Belk, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 50 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Includes 1.5 shares held by Belk Enterprises, Inc. and 101 shares held by Matthews-Belk Company, which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Includes 130.5 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (e) Includes 55 shares held by James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox and 36 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (f) Includes 8 shares held by Residuary Trust U/W of Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (g) Includes 62 shares held by First Union National Bank of N.C., B. Frank Matthews, II and Annabelle Z. Royster, Co-Trustees under the will of J.H. Matthews, Jr. The named Trustees have voting and investment power with respect to such shares. (h) Includes 4 shares held by B. Franklin Matthews, II's wife, Betty Choate Matthews. 21 <PAGE> 1798 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1799 BELK-MATTHEWS COMPANY OF CHERRYVILLE, N.C., INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 15,293 $ 15,691 Accounts receivable, net.................................. 110,449 123,897 Merchandise inventory..................................... 239,973 244,137 Receivable from affiliates, net........................... 124,582 131,877 Refundable income taxes................................... 43 -- Deferred income taxes..................................... 1,600 -- Other..................................................... 8,074 7,061 -------- -------- Total current assets........................................ 500,014 522,663 Investments................................................. 205 205 Property, plant and equipment, net.......................... 96,349 88,242 Deferred income taxes....................................... -- 242 Other noncurrent assets..................................... 4,955 4,300 -------- -------- $601,523 $615,652 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 54,498 $ 51,596 Deferred income taxes..................................... -- 955 Accrued income taxes...................................... 217 4,899 -------- -------- Total current liabilities................................... 54,715 57,450 Deferred income taxes....................................... 909 -- Other noncurrent liabilities................................ 11,651 12,735 -------- -------- Total liabilities........................................... 67,275 70,185 Shareholders' equity: Common stock.............................................. 111,700 111,700 Retained earnings......................................... 422,548 433,767 -------- -------- Total shareholders' equity.................................. 534,248 545,467 -------- -------- $601,523 $615,652 ======== ======== </TABLE> F-2 <PAGE> 1800 BELK-MATTHEWS COMPANY OF CHERRYVILLE, N.C., INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales................................................... $833,071 $780,119 $755,919 Operating costs and expenses................................ 788,295 767,256 726,386 -------- -------- -------- Income from operations...................................... 44,776 12,863 29,533 -------- -------- -------- Other income (expense): Interest, net............................................. 3,922 4,200 3,132 Gain (loss) on sale of securities......................... -- -- 2,388 Miscellaneous, net........................................ (1,144) (945) 263 -------- -------- -------- Total other expense, net.................................... 2,778 3,255 5,783 -------- -------- -------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities............. 47,554 16,118 35,316 Income tax expense (benefit)................................ 10,173 3,395 7,342 -------- -------- -------- Earnings from continuing operations before equity in earnings of unconsolidated entities....................... 37,381 12,723 27,974 -------- -------- -------- Net earnings................................................ 37,381 12,723 27,974 Retained earnings at beginning of period.................... 428,294 437,750 422,548 Dividends paid.............................................. (27,925) (27,925) (16,755) -------- -------- -------- Retained earnings at end of period.......................... $437,750 $422,548 $433,767 ======== ======== ======== </TABLE> F-3 <PAGE> 1801 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1802 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1803 ANNEX A DISSENTER'S RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 1804 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1805 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1806 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1807 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1808 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1809 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY --------- ---------- ------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement..................... $ 755,919 $27,974 $32,182 $40,289 $545,467 Adjustments to eliminate less than wholly-owned subsidiaries.................................. -- -- -- -- -- --------- ------- ------- ------- -------- Adjusted Shareholders' Statement................ $ 755,919 27,974 32,182 40,289 545,467 ========= ------- ------- ------- -------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................. -- -- -- Gain/loss on sale of securities............... (1,893) (2,388) (2,388) Impairment loss............................... -- -- -- Equity in earnings of unconsolidated subsidiaries................................ -- -- -- Gain/loss on discontinued operations.......... -- -- -- Adjustment to tax expense..................... -- -- -- -- ------- ------- ------- Total non-operating items....................... (1,893) (2,388) (2,388) ------- ------- ------- Other Adjustments: Adjustment for dividends received from other Belk entities............................... -- -- -- Adjustment for ownership in other Belk entities.................................... (205) ------- ------- ------- -------- Per Model....................................... $26,081 $29,794 $37,901 $545,262 ======= ======= ======= ======== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents..................... $ (15,690) Negative cash balances reclassified to accounts payable.......................... -- Receivables from affiliates, net............ (131,877) Loans receivable from affiliates, net....... -- Liabilities Notes payable............................... -- Current installments of long-term debt...... -- Current portion of obligations under capital leases.................................... -- Payables to affiliates, net................. -- Long-term debt, excluding current installments.............................. -- Obligations under capital leases, excluding current portion........................... -- Loans payable to affiliates, net............ -- --------- Net debt (cash)................................. (147,567) Adjustments to eliminate less than wholly-owned subsidiaries.................................. -- --------- Per Model....................................... $(147,567) ========= </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1810 SUPPLEMENT NO. 42 <PAGE> 1811 BELK-MATTHEWS COMPANY OF CHERRYVILLE, N.C., INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 42 <PAGE> 1812 BELK DEPARTMENT STORE OF CLINTON, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Department Store of Clinton, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 110.9315 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 410.058 shares of New Belk Class A Common Stock which will represent approximately 0.6834% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1813 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1814 BELK DEPARTMENT STORE OF CLINTON, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK DEPARTMENT STORE OF CLINTON, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Department Store of Clinton, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 110.9315 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1815 BELK DEPARTMENT STORE OF CLINTON, N.C., INC. SUPPLEMENT NO. 43 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 43 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK DEPARTMENT STORE OF CLINTON, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 21 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 1816 THE COMPANY The Company was incorporated as a North Carolina corporation in 1928. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 110.9315 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1817 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see " -- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 6,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one 3 <PAGE> 1818 vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 1819 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them 5 <PAGE> 1820 adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without 6 <PAGE> 1821 prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more 7 <PAGE> 1822 than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 1823 Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly 9 <PAGE> 1824 in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, 10 <PAGE> 1825 guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. 11 <PAGE> 1826 Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates 12 <PAGE> 1827 must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. 13 <PAGE> 1828 A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1829 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: The following table shows the method used to calculate the Relative Operating Value for the Company, based on each separate methodology: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- --------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $12,053,150 $12,053,150 0.6 $(516,907) $ 7,748,798 EBITDA............... 1,135,124 1,135,125 7 (516,907) 8,462,783 EBIT................. 1,015,375 1,015,376 10 (516,907) 10,670,668 Net Income........... 609,592 609,592 15 -- 9,143,880 Book Equity.......... 4,768,068 4,588,134 1 -- 4,588,134 </TABLE> 15 <PAGE> 1830 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk Department Store of Greenville, N.C., Inc. .2866% X $25,446,468 = $ 72,930 Belk's Department Store of Jacksonville, N.C., Inc. .5453 X 29,859,953 = 162,826 Belk's Department Store of Rockingham, N.C., Incorporated 4.8242 X 2,851,585 = 137,566 ----------- Total $ 373,322 =========== Relative Operating Value of Company $10,670,668 Relative Operating Value of Other Companies Owned by Company + 373,322 ----------- Total Relative Value of Company = $11,043,990 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Department Store of Ahoskie, N.C., Inc. 3.5403% X $11,043,990 = $ 390,990 Belk's Department Store of Asheville, North Carolina, Incorporated 1.2575 X 11,043,990 = 138,878 Belk Brothers Company 10.4372 X 11,043,990 = 1,152,683 Belk Enterprises, Inc. 4.9526 X 11,043,990 = 546,965 Belk Finance Company 2.6698 X 11,043,990 = 294,853 Belk's Department Store of Morehead City, N.C., Inc. 5.6297 X 11,043,990 = 621,744 ----------- Total $ 3,146,113 =========== Total Relative Value of Company $11,043,990 Total Relative Value of Company Owned by Other Belk Companies - 3,146,113 Net Relative Value of Company = $ 7,897,877 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $7,897,877 / $1,155,623,145 = .6834% </TABLE> 16 <PAGE> 1831 The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.6834% X 60,000,007) / 3,696.5 = 110.9315 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 1832 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 117.93 Book value per share(2)................................... 922.44 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 105.29 Book value per share...................................... 1,404.61 </TABLE> - --------------- (1) Based on 5,169 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 5,169 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 1833 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $10,736 $11,412 $12,053 Net income.................................................. 390 454 610 Per common share Net income (loss)(1)...................................... 75.31 87.76 117.93 Dividends................................................. 15.09 20.00 22.50 Book value(2)............................................. 751.38 822.96 922.44 Total assets................................................ 4,564 5,142 6,060 Shareholders' equity........................................ 3,884 4,254 4,768 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $8,225 $8,494 Income from operations...................................... 561 655 </TABLE> - --------------- (1) Based on 5,169 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 5,169 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 19 <PAGE> 1834 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates two retail department stores in the following locations in North Carolina: Coharie Plaza in Clinton and Riverbirch Corner in Sanford. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The stores are managed out of the Howard group office in Fayetteville, North Carolina. Facilities. The Company operates two stores, both of which are leased under long-term leases. The store leases have termination dates of 2002 and 2004. The floor area of the leased buildings is 36,000 and 42,000 square feet. The Company believes these facilities are adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Penney and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 20 <PAGE> 1835 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)........................................... 2,373.25 45.9% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(b)(d)(e).............................................. 1,999.25 38.7% H. W. McKay Belk (Director and Executive Officer) (a)(b)(d)(e).............................................. 2,003.25 38.8% John R. Belk (Director and Executive Officer) (a)(b)(d)(e).............................................. 1,999.25 38.7% Henderson Belk (Director) (c)............................... 168.00 3.3% David Belk Cannon (Director) (g)............................ 378.00 7.3% James K. Glenn, Jr. (Director) (f).......................... 258.00 5.0% Leroy Robinson (Director) (a)(b)............................ 252.75 4.9% Troy M. Howard (Director and Executive Officer)............. 0 * W. B. Beery, III (Director)................................. 0 * Sarah Belk Gambrell (c)..................................... 464.00 9.0% Katherine Belk Morris (a)(b)................................ 274.75 5.3% William B. Beery, IV (j).................................... 345.00 6.7% Martha B. Dineen (j)........................................ 345.00 6.7% Katherine E. Beery (d)...................................... 345.00 6.7% Andrew Hoyt Borland......................................... 360.00 7.0% William R. Young (Executive Officer)........................ 0 * Belk's Department Store of Morehead City, N.C., Inc......... 291.00 5.6% J.V. Properties............................................. 539.50 10.4% William B. Beery, III and Martha B. Beery Irrevocable Trust..................................................... 345.00 6.7% All Directors and Executive Officers as a group (10 persons).................................................. 3,363.25 65.1% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28270; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P.O. Box 2736, Winston-Salem, N.C. 27102; W. B. Beery, III, W. B. Beery, IV, Martha B. Dineen and Katherine E. Beery -- 1919 Brookhaven Road, Wilmington, N.C. 28403; Troy M. Howard and William R. Young -- 4525 Camp Ground Road, Fayetteville, N.C. 28314; Andrew Hoyt Borland -- 18 Severn River Road, Round Bay, Severn Park, Md. 24116; Belk's Department Store of Morehead City, N.C., Inc. and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-45 and William B. Beery, III and Martha B. Beery Irrevocable Trust -- 1919 Brookhaven Road, Wilmington, N.C. 28403. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 21.75 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. 21 <PAGE> 1836 Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (b) Includes 231 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 168 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 256 shares held by Belk Enterprises, Inc., 138 shares held by Belk Finance Company, 65 shares held by Belk's Department Store of Asheville, North Carolina, Inc., 183 shares held by Belk Department Store of Ahoskie, North Carolina, Inc. and 291 shares held by Belk's Department Store of Morehead City, N.C., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (e) Includes 539.5 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (f) Includes 256 shares held by James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox and 1 share held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (g) Includes 114 shares held by Residuary Trust U/W of Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (h) Includes 8 shares held by NationsBank as Trustee for the Daisy Belk Doughton Lange Revocable Trust dated 3/25/97, 128 shares held by Sara Dew Misner and North Carolina National Bank, Co-Trustees for Daisy Doughton Lange U/A dated November 5, 1965, 115 shares held by J.L. Green, Jr. and N.C. National Bank, Trustees U/A 7/9/65 -- Sadie Belk Cummings, Grantor. NationsBank has sole voting and investing power with respect to such shares. (i) Includes 122 shares held by Daisy Doughton Lange and North Carolina National Bank, Trustees for Robert L. Doughton, II under Agreement dated July 21, 1965. The named Trustees have voting and investment power with respect to such shares. (j) Includes 345 shares held by William B. Beery, III and Martha B. Beery Irrevocable Trust. The Trustees, who are William B. Beery, IV, Martha B. Dineen and Katherine E. Beery, share voting and investment power with respect to such shares. 22 <PAGE> 1837 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1838 BELK DEPARTMENT STORE OF CLINTON, N.C., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 121,132 $ 133,098 Accounts receivable, net.................................. 1,787,037 2,044,313 Merchandise inventory..................................... 2,078,799 2,366,270 Receivable from affiliates, net........................... 18,547 253,454 Deferred income taxes..................................... 39,930 43,140 Other..................................................... 83,899 81,023 ---------- ---------- Total current assets........................................ 4,129,344 4,921,298 Loans receivable from affiliates, net....................... 251,378 251,378 Investments................................................. 106,299 319,782 Property, plant and equipment, net.......................... 617,821 542,488 Other noncurrent assets..................................... 37,226 25,139 ---------- ---------- $5,142,068 $6,060,085 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt.................... $ -- $ 40,293 Accounts payable and accrued expenses..................... 753,219 917,089 Accrued income taxes...................................... 19,982 116,645 ---------- ---------- Total current liabilities................................... 773,201 1,074,027 Deferred income taxes....................................... 80,519 95,848 Long-term debt, excluding current installments.............. -- 80,586 Other noncurrent liabilities................................ 34,443 41,556 ---------- ---------- Total liabilities........................................... 888,163 1,292,017 Shareholders' equity: Common stock.............................................. 516,900 516,900 Net unrealized gain (loss) on investments, net of income taxes.................................................. 63,714 84,588 Retained earnings......................................... 3,673,291 4,166,580 ---------- ---------- Total shareholders' equity.................................. 4,253,905 4,768,068 ---------- ---------- $5,142,068 $6,060,085 ========== ========== </TABLE> F-2 <PAGE> 1839 BELK DEPARTMENT STORE OF CLINTON, N.C., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ------------ ------------ <S> <C> <C> <C> Net sales............................................. $10,735,920 $11,411,909 $12,053,150 Operating costs and expenses.......................... 10,072,665 10,655,353 11,041,069 ----------- ----------- ----------- Income from operations................................ 663,255 756,556 1,012,081 ----------- ----------- ----------- Other income (expense): Interest, net....................................... (14,693) (8,903) (17,172) Dividend income..................................... 2,671 3,104 3,609 Gain (loss) on disposal of property, plant and equipment........................................ (658) 503 -- Miscellaneous, net.................................. (8,997) (7,593) (315) ----------- ----------- ----------- Total other expense, net.............................. (21,677) (12,889) (13,878) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities............................................ 641,578 743,667 998,203 Income tax expense (benefit).......................... 251,147 290,052 388,611 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................. 390,431 453,615 609,592 ----------- ----------- ----------- Net earnings.......................................... 390,431 453,615 609,592 Retained earnings at beginning of period.............. 3,027,690 3,323,056 3,673,291 Dividends paid........................................ (77,985) (103,380) (116,303) Purchase of treasury stock............................ (17,080) -- -- ----------- ----------- ----------- Retained earnings at end of period.................... $ 3,323,056 $ 3,673,291 $ 4,166,580 =========== =========== =========== </TABLE> F-3 <PAGE> 1840 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1841 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1842 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; A-1 <PAGE> 1843 (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1844 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1845 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1846 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1847 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1848 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ---------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................. $12,053,150 $609,592 $1,015,376 $1,135,125 $4,768,068 Adjustments to eliminate less than wholly-owned subsidiaries................. -- -- -- -- -- ----------- -------- ---------- ---------- ---------- Adjusted Shareholders' Statement............ $12,053,150 609,592 1,015,376 1,135,125 4,768,068 =========== -------- ---------- ---------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............. -- -- -- Gain/loss on sale of securities........... -- -- -- Impairment loss........................... -- -- -- Equity in earnings of unconsolidated subsidiaries............................ -- -- -- Gain/loss on discontinued operations...... -- -- -- Adjustment to tax expense................. -- -- -- -- -------- ---------- ---------- Total non-operating items................... -- -- -- -------- ---------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities..................... -- -- -- Adjustment for ownership in other Belk entities................................ (179,934) -------- ---------- ---------- ---------- Per Model................................... $609,592 $1,015,376 $1,135,125 $4,588,134 ======== ========== ========== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................. $ (133,098) Negative cash balances reclassified to accounts payable...................... 143 Receivables from affiliates, net........ (253,454) Loans receivable from affiliates, net... (251,378) Liabilities Notes payable........................... -- Current installments of long-term debt.................................. 40,293 Current portion of obligations under capital leases........................ -- Payables to affiliates, net............. -- Long-term debt, excluding current installments.......................... 80,586 Obligations under capital leases, excluding current portion............. -- Loans payable to affiliates, net........ -- ----------- Net debt (cash)............................. (516,908) Adjustments to eliminate less than wholly-owned subsidiaries................. -- ----------- Per Model................................... $ (516,908) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1849 SUPPLEMENT NO. 43 <PAGE> 1850 BELK DEPARTMENT STORE OF CLINTON, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 43 <PAGE> 1851 BELK'S DEPARTMENT STORE OF DUNN, NORTH CAROLINA, INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk's Department Store of Dunn, North Carolina, Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 69.7736 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 618,194 shares of New Belk Class A Common Stock which will represent approximately 1.0303% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1852 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1853 BELK'S DEPARTMENT STORE OF DUNN, NORTH CAROLINA, INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK'S DEPARTMENT STORE OF DUNN, NORTH CAROLINA, INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk's Department Store of Dunn, North Carolina, Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 69.7736 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1854 BELK'S DEPARTMENT STORE OF DUNN, NORTH CAROLINA, INCORPORATED SUPPLEMENT NO. 44 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 44 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK'S DEPARTMENT STORE OF DUNN, NORTH CAROLINA, INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/ PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 1855 THE COMPANY The Company was incorporated as a North Carolina corporation in 1934. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of Class A Common Stock, par value $100 per share, of the Company (the "Class A Common Stock"), and the Class B Common Stock, par value $100 per share, of the Company (the "Class B Common Stock"; together with the Class A Common Stock, the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 69.7736 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock 2 <PAGE> 1856 vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 19,200 shares of Class A Common Stock, and 1,920 shares of Class B Common Stock. 3 <PAGE> 1857 Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for two classes of Common Stock. The holders of Class B capital stock of the Company are not entitled to vote, but otherwise the holders of Class A capital stock of the Company and of Class B capital stock of the Company have the same rights and powers. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable 4 <PAGE> 1858 security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority 5 <PAGE> 1859 of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special 6 <PAGE> 1860 meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be 7 <PAGE> 1861 made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. 8 <PAGE> 1862 Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with 9 <PAGE> 1863 a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation, or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolida- 10 <PAGE> 1864 tion of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New 11 <PAGE> 1865 Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a 12 <PAGE> 1866 vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) 13 <PAGE> 1867 above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period")multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of 14 <PAGE> 1868 Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $10,071,386 $10,071,386 0.6 $(2,630,794) $ 8,673,626 EBITDA............... 1,348,364 1,348,365 7 (2,630,794) 12,069,350 EBIT................. 1,156,039 1,156,040 10 (2,630,794) 14,191,195 Net Income........... 762,435 762,435 15 -- 11,436,525 Book Equity.......... 6,536,839 6,536,177 1 -- 6,536,177 </TABLE> 15 <PAGE> 1869 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ----------- Total $ N/A =========== Relative Operating Value of Company $14,191,195 Relative Operating Value of Other Companies Owned by Company + -- ----------- Total Relative Value of Company = $14,191,195 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. .909% X $14,191,195 = $ 128,998 Belk Department Store of Greenville, N.C., Inc. 13.3712 X 14,191,195 = 1,897,534 Belk Brothers of Monroe, North Carolina, Incorporated 1.8181 X 14,191,195 = 258,010 ----------- Total $ 2,284,542 =========== Total Relative Value of Company $14,191,195 Total Relative Value of Company Owned by Other Belk Companies - 2,284,541 ----------- Net Relative Value of Company = $11,906,653 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $11,906,653 / $1,155,623,145 = 1.0303% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (1.0303% X 60,000,007) / 8,860 = 69.7736 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1870 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 72.20 Book value per share(2)................................... 619.02 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 66.23 Book value per share...................................... 883.47 </TABLE> - --------------- (1) Based on 10,560 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 10,560 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1871 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 9,402 $ 9,756 $10,071 Net income.................................................. 514 660 762 Per common share Net income (loss)(1)...................................... 48.65 62.50 72.20 Dividends................................................. 12.50 14.00 15.00 Book value(2)............................................. 513.32 561.82 619.02 Total assets................................................ 5,967 6,797 7,416 Shareholders' equity........................................ 5,421 5,933 6,537 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $7,015 $6,967 Income from operations...................................... 744 813 </TABLE> - --------------- (1) Based on 10,560 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 10,560 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1872 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Harnett Crossing in Dunn, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Howard group office in Fayetteville, North Carolina. Facilities. The Company owns the store property and building, which contains approximately 68,000 square feet of floor area, together with an adjacent parking area. The Company believes the building is adequate to meet its current needs. Competition. The Company's principal competitor in the market is Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1873 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)........ 2,334 22.1% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(b).................................................... 2,202 20.9% H. W. McKay Belk (Director and Executive Officer) (a)(b).... 2,142 20.3% John R. Belk (Director and Executive Officer) (a)(b)........ 2,142 20.3% Henderson Belk (Director)................................... 0 * Sarah Belk Gambrell (Director).............................. 324 3.1% Leroy Robinson (Director) (a)............................... 106 1.0% Troy M. Howard (Director and Executive Officer)............. 0 * William R. Young (Executive Officer)........................ 0 * Richard L. Hensdale......................................... 800 7.6% Frances H. Autry............................................ 800 7.6% Dorothy H. Gardner.......................................... 800 7.6% Lucy Simpson Kuhne (c)...................................... 800 7.6% Mary E. S. Hanahan.......................................... 800 7.6% W. M. Raynor................................................ 960 9.1% Belk Department Store of Greenville, N.C., Inc.............. 1,412 14.7% All Directors and Executive Officers as a group (8 persons).................................................. 3,438 32.6% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Troy M. Howard and William R. Young -- 4525 Camp Ground Road, Fayetteville, N.C. 28314; Richard L. Hensdale -- P. O. Box 53344, Fayetteville, N.C. 28305; Frances Hensdale Autry -- 1203 Longleaf Drive, Fayetteville, N.C. 28305; Dorothy H. Gardner -- 1609 Pugh Street, Fayetteville, N.C. 28305; Lucy Simpson Kuhne -- 14 S. Main Street, Greenville, S.C. 29601; Mary E. S. Hanahan -- P.O. Box 1294, Charleston, S.C. 29402; W. M. Raynor -- 226 Edgedale Drive, High Point, N. C. 27262; Belk Department Store of Greenville, N.C., Inc., -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 106 shares held by Milburn Investment Company, of which the Estate of Thomas M. Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas M. Belk who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 1,412 shares held by Belk Department Store of Greenville, N.C., Inc., 96 shares held by Belk Enterprises, Inc., and 192 shares held by Belk Brothers of Monroe, North Carolina, Incorporated which shares are voted by the members of the Executive Committee of the Board of Directors of each such 20 <PAGE> 1874 corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (c) Includes 200 shares held by the Estate of William Henry Belk Simpson. Voting and investment power is shared by the Personal Representatives, who are Kate Simpson, Lucy Kuhne and Claire Russo. 21 <PAGE> 1875 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 </TABLE> F-1 <PAGE> 1876 BELK'S DEPARTMENT STORE OF DUNN, NORTH CAROLINA, INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 91,197 $ 173,939 Accounts receivable, net.................................. 1,652,344 1,798,995 Merchandise inventory..................................... 1,726,400 1,837,523 Receivable from affiliates, net........................... 793,583 952,697 Refundable income taxes................................... -- 27,692 Deferred income taxes..................................... 44,761 44,607 Other..................................................... 74,036 71,248 ---------- ---------- Total current assets........................................ 4,382,321 4,906,701 Loans receivable from affiliates, net....................... 1,254,159 1,504,159 Investments................................................. 2,662 2,662 Property, plant and equipment, net.......................... 1,121,819 961,670 Deferred income taxes....................................... -- 9,580 Other noncurrent assets..................................... 36,181 31,177 ---------- ---------- $6,797,142 $7,415,949 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... 639,830 770,018 Accrued income taxes...................................... 123,256 14,112 ---------- ---------- Total current liabilities................................... 763,086 784,130 Deferred income taxes....................................... 8,099 -- Other noncurrent liabilities................................ 93,152 94,980 ---------- ---------- Total liabilities........................................... 864,337 879,110 Shareholders' equity: Common stock.............................................. 1,056,000 1,056,000 Retained earnings......................................... 4,876,805 5,480,839 ---------- ---------- Total shareholders' equity.................................. 5,932,805 6,536,839 ---------- ---------- $6,797,142 $7,415,949 ========== ========== </TABLE> F-2 <PAGE> 1877 BELK'S DEPARTMENT STORE OF DUNN, NORTH CAROLINA, INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales................................................. $9,401,565 $9,756,305 $10,071,385 Operating costs and expenses.............................. 8,635,519 8,765,605 8,914,623 ---------- ---------- ----------- Income from operations.................................... 766,046 990,700 1,156,762 ---------- ---------- ----------- Other income (expense): Interest, net........................................... 38,146 72,457 83,309 Dividend income......................................... -- 500 500 Gain (loss) on disposal of property, plant and equipment............................................ 125 -- -- Miscellaneous, net...................................... (11,545) (8,512) (1,223) ---------- ---------- ----------- Total other expense, net.................................. 26,726 64,445 82,586 ---------- ---------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities....... 792,772 1,055,145 1,239,348 Income tax expense (benefit).............................. 279,057 395,131 476,914 ---------- ---------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities..................... 513,715 660,014 762,434 ---------- ---------- ----------- Net earnings.............................................. 513,715 660,014 762,434 Retained earnings at beginning of period.................. 3,982,916 4,364,631 4,876,805 Dividends paid............................................ (132,000) (147,840) (158,400) ---------- ---------- ----------- Retained earnings at end of period........................ $4,364,631 $4,876,805 $ 5,480,839 ========== ========== =========== </TABLE> F-3 <PAGE> 1878 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1879 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1880 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 1881 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1882 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1883 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1884 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1885 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1886 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ----------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................ $10,071,386 $762,435 $ 1,156,039 $1,348,364 $6,536,839 Adjustments to eliminate less than wholly-owned subsidiaries................ -- -- -- -- -- ----------- -------- ----------- ---------- ---------- Adjusted Shareholders' Statement........... $10,071,386 762,435 1,156,039 1,348,364 6,536,839 =========== -------- ----------- ---------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............ -- -- -- Gain/loss on sale of securities.......... -- -- -- Impairment loss.......................... -- -- -- Equity in earnings of unconsolidated subsidiaries........................... -- -- -- Gain/loss on discontinued operations..... -- -- -- Adjustment to tax expense................ -- -- -- -- -------- ----------- ---------- Total non-operating items.................. -- -- -- -------- ----------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities.................... -- -- -- Adjustment for ownership in other Belk entities............................... (662) -------- ----------- ---------- ---------- Per Model.................................. $762,435 $ 1,156,039 $1,348,364 $6,536,177 ======== =========== ========== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................ $ (173,938) Negative cash balances reclassified to accounts payable..................... -- Receivables from affiliates, net....... (952,697) Loans receivable from affiliates, net.................................. (1,504,159) Liabilities Notes payable.......................... -- Current installments of long-term debt................................. -- Current portion of obligations under capital leases....................... -- Payables to affiliates, net............ -- Long-term debt, excluding current installments......................... -- Obligations under capital leases, excluding current portion............ -- Loans payable to affiliates, net....... -- ----------- Net debt (cash)............................ (2,630,794) Adjustments to eliminate less than wholly-owned subsidiaries................ -- ----------- Per Model.................................. $(2,630,794) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1887 SUPPLEMENT NO. 44 <PAGE> 1888 BELK'S DEPARTMENT STORE OF DUNN, N.C., INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 ----------------- ----------------------------- Signature ----------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 44 <PAGE> 1889 BELK DEPARTMENT STORE OF EDEN, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Department Store of Eden, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 75.2272 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 96,667 shares of New Belk Class A Common Stock which will represent approximately 0.1611% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1890 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1891 BELK DEPARTMENT STORE OF EDEN, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK DEPARTMENT STORE OF EDEN, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Department Store of Eden, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 75.2272 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1892 BELK DEPARTMENT STORE OF EDEN, N.C., INC. SUPPLEMENT NO. 45 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 45 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK DEPARTMENT STORE OF EDEN, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICALS FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 1893 THE COMPANY The Company was incorporated as a North Carolina corporation in 1943. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 75.2272 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1894 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to share the risk associated with the uncertain prospects for the Company's store in its current location. The store is located in a relatively small market that is also close to larger markets with larger Belk stores and other competitors. The prospects for growth of the Company's store may be limited because of the size of its market and its close proximity to such competition. The Merger would allow the Company to share with New Belk the risk associated with the Company's current market and participate in the growth of other Belk stores located in markets with better growth prospects. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. 3 <PAGE> 1895 Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 5,520 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New 4 <PAGE> 1896 Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a 5 <PAGE> 1897 quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a 6 <PAGE> 1898 meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. 7 <PAGE> 1899 The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove 8 <PAGE> 1900 him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct 9 <PAGE> 1901 in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage 10 <PAGE> 1902 of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. 11 <PAGE> 1903 With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. 12 <PAGE> 1904 Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. 13 <PAGE> 1905 A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. 14 <PAGE> 1906 Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $5,472,959 $5,472,959 0.6 $272,950 $3,010,826 EBITDA............... 343,948 343,948 7 272,950 2,134,687 EBIT................. 311,143 311,144 10 272,950 2,838,491 Net Income........... 176,230 176,230 15 -- 2,643,450 Book Equity.......... 1,663,410 1,662,718 1 -- 1,662,718 </TABLE> 15 <PAGE> 1907 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ---------- Total N/A ========== Relative Operating Value of Company $3,010,886 Relative Operating Value of Other Companies Owned by Company + -- ---------- Total Relative Value of Company = $3,010,886 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 5.0048% X $ 3,010,826 = $ 150,686 Belk Enterprises, Inc. 13.4745 X 3,010,826 = 405,694 Belk-Beck Company of Burlington, North Carolina, Inc. 2.6949 X 3,010,826 = 81,139 Belk's Department Store of Mount Airy, North Carolina, Incorporated 16.9875 X 3,010,826 = 511,464 ---------- Total $1,148,983 ========== Total Relative Value of Company $3,010,826 Total Relative Value of Company Owned by Other Belk Companies - 1,148,983 ---------- Net Relative Value of Company = $1,861,843 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $1,861,844 / $1,155,623,145 = .1611% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.1611% X 60,000,007) / 1,285 = 75.2272 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1908 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 84.81 Book value per share(2)................................... 800.49 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 71.40 Book value per share...................................... 952.52 </TABLE> - --------------- (1) Based on 2,078 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 2,078 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1909 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 6,048 $ 5,657 $ 5,473 Net income.................................................. 261 166 176 Per common share Net income (loss)(1)...................................... 125.69 79.92 84.81 Dividends................................................. -- 5.00 5.00 Book value(2)............................................. 645.76 720.68 800.49 Total assets................................................ 2,431 2.324 2,408 Shareholders' equity........................................ 1,342 1,498 1,663 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $3,824 $3,827 Income from operations...................................... 150 228 </TABLE> - --------------- (1) Based on 2,078 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 2,078 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1910 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Eden Mall in Eden, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Huffstetler group office in Greensboro, North Carolina. Facilities. The Company leases its store building, which contains approximately 58,000 square feet of floor area. The current term of the lease expires in 2005. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart and Peebles. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1911 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Office) (a)(b)(c)(d)... 1,159 55.8% Thomas M. Belk, Jr. (Director and Executive Officer)(a)(c)(d)......................................... 955 46.0% H. W. McKay Belk (Director and Executive Officer) (a)(c)(d)................................................. 953 45.9% John R. Belk (Director and Executive Officer) (a)(c)(d)..... 955 46.0% Henderson Belk (Director) (b)............................... 22 1.1% Sarah Belk Gambrell (Director) (b).......................... 216 10.4% David Belk Cannon (Director)................................ 0 * James K. Glenn, Jr. (Director) (c).......................... 80 3.8% Leroy Robinson (a).......................................... 118 5.7% Katherine McKay Belk (a).................................... 158 7.6% Katherine Belk Morris (a)................................... 160 7.7% Sarah Gambrell Knight....................................... 155 7.5% Pete Huffstetler (Executive Officer)........................ 0 * Gordon J. Tendler (Executive Officer)....................... 0 * Darrell Murphy (Executive Officer).......................... 0 * Thomas M. Belk, Trustee U/A dated September 15, 1993........ 118 5.7% Belk Enterprises, Inc....................................... 280 13.5% Belk's Department Store of Mount Airy, North Carolina, Incorporated.............................................. 353 17.0% J.V. Properties............................................. 104 5.0% All Directors and Executive Officers as a group (9 persons).................................................. 1,507 72.5% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell 300 Cherokee Road, Charlotte, N.C. 28207; Sarah Gambrell Knight -- 810 Colville Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P.O. Box 2736, Winston-Salem, N.C. 27102; Pete Huffstetler, Darrell Murphy and Gordon J. Tendler -- 1-104 Carolina Circle Mall, Greensboro, N.C. 27405; Belk Enterprises, Inc., Belk's Department Store of Mount Airy, North Carolina, Incorporated, J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 118 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. 20 <PAGE> 1912 (b) Includes 22 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Included are 280 shares held by Belk Enterprises, Inc., 353 shares held by Belk's Department Store of Mount Airy, North Carolina, Incorporated and 56 shares held by Belk-Beck Company of Burlington, North Carolina, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Included are 104 shares held by J. V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (e) Included are 70 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al. 21 <PAGE> 1913 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1914 BELK DEPARTMENT STORE OF EDEN, N.C., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ------------ ------------ <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 44,852 $ 70,151 Accounts receivable, net.................................. 995,900 1,109,049 Merchandise inventory..................................... 1,001,272 1,026,750 Receivable from affiliates, net........................... 37,208 -- Deferred income taxes..................................... 22,201 14,999 Other..................................................... 60,803 52,582 ---------- ---------- Total current assets........................................ 2,162,236 2,273,531 Investments................................................. 692 692 Property, plant and equipment, net.......................... 136,425 112,561 Other noncurrent assets..................................... 24,928 21,016 ---------- ---------- $2,324,281 $2,407,800 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable............................................. $ 475,000 $ -- Accounts payable and accrued expenses..................... 285,682 332,287 Payables to affiliates, net............................... -- 343,099 Accrued income taxes...................................... 30,162 34,060 ---------- ---------- Total current liabilities................................... 790,844 709,446 Deferred income taxes....................................... 16,842 8,928 Other noncurrent liabilities................................ 19,025 26,016 ---------- ---------- Total liabilities........................................... 826,711 744,390 Shareholders' equity: Common stock.............................................. 207,800 207,800 Retained earnings......................................... 1,289,770 1,455,610 ---------- ---------- Total shareholders' equity.................................. 1,497,570 1,663,410 ---------- ---------- $2,324,281 $2,407,800 ========== ========== </TABLE> F-2 <PAGE> 1915 BELK DEPARTMENT STORE OF EDEN, N.C., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ------------ ------------ <S> <C> <C> <C> Net sales.................................................. $6,048,442 $5,656,610 $5,472,959 Operating costs and expenses............................... 5,566,021 5,332,347 5,161,496 ---------- ---------- ---------- Income from operations..................................... 482,421 324,263 311,463 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (47,846) (54,458) (35,671) Gain (loss) on disposal of property, plant and equipment............................................. 35 100 -- Miscellaneous, net....................................... (6,356) (10,095) (320) ---------- ---------- ---------- Total other expense, net................................... (54,167) (64,453) (35,991) ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 428,254 259,810 275,472 Income tax expense (benefit)............................... 167,072 93,741 99,242 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 261,182 166,069 176,230 ---------- ---------- ---------- Net earnings............................................... 261,182 166,069 176,230 Retained earnings at beginning of period................... 872,909 1,134,091 1,289,770 Dividends paid............................................. -- (10,390) (10,390) ---------- ---------- ---------- Retained earnings at end of period......................... $1,134,091 $1,289,770 $1,455,610 ========== ========== ========== </TABLE> F-3 <PAGE> 1916 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996, AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1917 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1918 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; A-1 <PAGE> 1919 (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1920 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1921 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1922 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1923 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1924 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $5,472,959 $176,230 $311,143 $343,948 $1,663,410 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- -------- ---------- Adjusted Shareholders' Statement............... $5,472,959 176,230 311,143 343,948 1,663,410 ========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ -- -- -- Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- -------- -------- -------- Total non-operating items...................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (692) -------- -------- -------- ---------- Per Model...................................... $176,230 $311,143 $343,948 $1,662,718 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (70,149) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... -- Loans receivable from affiliates, net...... -- Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ 343,099 Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ 272,950 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ 272,950 ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1925 SUPPLEMENT NO. 45 <PAGE> 1926 BELK DEPARTMENT STORE OF EDEN, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 45 <PAGE> 1927 BELK DEPARTMENT STORE OF ELKIN, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Department Store of Elkin, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 46.7363 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 40,520 shares of New Belk Class A Common Stock which will represent approximately 0.0675% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 1928 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1929 BELK DEPARTMENT STORE OF ELKIN, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK DEPARTMENT STORE OF ELKIN, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Department Store of Elkin, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 46.7363 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1930 BELK DEPARTMENT STORE OF ELKIN, N.C., INC. SUPPLEMENT NO. 46 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 46 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK DEPARTMENT STORE OF ELKIN, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 1931 THE COMPANY The Company was incorporated as a North Carolina corporation in 1938. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 46.7363 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1932 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 2,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 1933 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 1934 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them 5 <PAGE> 1935 adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without 6 <PAGE> 1936 prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more 7 <PAGE> 1937 than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 1938 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official 9 <PAGE> 1939 capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which 10 <PAGE> 1940 results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a 11 <PAGE> 1941 preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. 12 <PAGE> 1942 After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. 13 <PAGE> 1943 If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1944 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............. $3,000,781 $3,000,781 0.6 $667,599 $1,132,871 EBITDA................ 290,764 290,834 7 667,599 1,368,240 EBIT.................. 185,038 185,107 10 667,599 1,183,472 Net Income............ 85,476 85,522 15 -- 1,282,830 Book Equity........... 1,215,088 1,214,762 1 -- 1,214,762 </TABLE> 15 <PAGE> 1945 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ---------- Total $ N/A ========== Relative Operating Value of Company $1,368,240 Relative Operating Value of Other Companies Owned by Company + -- ---------- Total Relative Value of Company = $1,368,240 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 12.8289% X $ 1,368,240 = $ 175,530 Belk Enterprises, Inc. 25.2632% X 1,368,240 = 345,661 Belk Department Store of Greenville, N.C., Inc. 4.8684% X 1,368,240 = 66,612 ---------- Total $ 587,803 ========== Total Relative Value of Company $1,368,240 Total Relative Value of Company Owned by Other Belk Companies - 587,803 ---------- Net Relative Value of Company = $ 780,437 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $780,437 / $1,155,623,145 = .0675% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON APPLICABLE EXCHANGE SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) RATIO <C> <C> <C> <C> <C> <C> <C> (.0675% X 60,000,007) / 867 = 46.7363 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1946 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 56.23 Book value per share(2)................................... 799.40 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 44.36 Book value per share...................................... 591.77 </TABLE> - --------------- (1) Based on 1,520 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 1,520 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1947 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 2,846 $ 2,868 $ 3,001 Net income.................................................. 39 6 85 Per common share Net income (loss)(1)...................................... 25.98 4.21 56.23 Dividends................................................. 0.00 5.00 2.50 Book value(2)............................................. 746.45 745.67 799.40 Total assets................................................ 2,409 2,206 2,250 Shareholders' equity........................................ 1,135 1,133 1,215 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $1,986 $2,167 Income from operations...................................... 52 160 </TABLE> - --------------- (1) Based on 1,520 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 1,520 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1948 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Income from operations increased in fiscal year 1997 and for the nine months ended November 1, 1997 primarily as a result of better inventory management. Comparable store sales have increased due to steady growth in the local economy and the relocation of two new employers to Elkin, North Carolina. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Ridgeview Crossing in Elkin, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Huffstetler group office in Greensboro, North Carolina. Facilities. The Company leases the land upon which it built its store building, which contains approximately 27,000 square feet of floor area. The current term of the lease expires in 2009. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1949 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 977 64.3% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(c)(d)................................................. 795 52.3% H. W. McKay Belk (Director and Executive Officer) (b)(c)(d)................................................. 795 52.3% John R. Belk (Director and Executive Officer) (b)(c)(d)..... 817 53.4% Henderson Belk (Director)................................... 0 * Sarah Belk Gambrell (Director).............................. 179 11.8% Leroy Robinson (b).......................................... 132 8.7% Katherine McKay Belk (b).................................... 132 8.7% Katherine Belk Morris (b)................................... 140 9.2% Pete Huffstetler (Executive Officer)........................ 0 * Gordon J. Tendler (Executive Officer)....................... 0 * Darrell Murphy (Executive Officer).......................... 0 * North Carolina National Bank, Successor Trustee u/w J. Horton Doughton for Virginia D. P. Doughton............... 120 7.9% Thomas M. Belk, Trustee U/A dated September 15, 1993........ 132 8.7% Belk Enterprises, Inc....................................... 384 25.3% J.V. Properties............................................. 195 8.7% All Directors and Executive Officers as a group (13 persons).................................................. 1,134 74.6% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Pete Huffstetler, Darrell Murphy and Gordon J. Tendler -- 1-104 Carolina Circle Mall, Greensboro, N.C. 27405; Ms. Sara McDonnell, Trust Department, NationsBank, N. A., Charlotte, N.C. 28255; Belk Enterprises, Inc. and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 58 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 132 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 384 shares held by Belk Enterprises, Inc. and 74 shares held by Belk Department Store of Greenville, N.C., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at 20 <PAGE> 1950 the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Includes 195 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. 21 <PAGE> 1951 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1952 BELK DEPARTMENT STORE OF ELKIN, N.C., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 20,409 $ 42,621 Accounts receivable, net.................................. 454,268 523,988 Merchandise inventory..................................... 474,723 529,596 Deferred income taxes..................................... 4,644 7,866 Other..................................................... 24,127 22,486 ---------- ---------- Total current assets........................................ 978,171 1,126,557 Investments................................................. 1,566 826 Property, plant and equipment, net.......................... 1,221,307 1,120,342 Other noncurrent assets..................................... 4,836 2,726 ---------- ---------- $2,205,880 $2,250,451 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt.................... $ 241,704 $ 241,666 Accounts payable and accrued expenses..................... 129,904 205,165 Payables to affiliates, net............................... 367,160 468,552 Accrued income taxes...................................... 12,164 50,505 ---------- ---------- Total current liabilities................................... 750,932 965,888 Deferred income taxes....................................... 66,239 52,309 Long-term debt, excluding current installments.............. 241,593 -- Other noncurrent liabilities................................ 13,704 17,166 ---------- ---------- Total liabilities........................................... 1,072,468 1,035,363 Shareholders' equity: Common stock.............................................. 152,000 152,000 Retained earnings......................................... 981,412 1,063,088 ---------- ---------- Total shareholders' equity.................................. 1,133,412 1,215,088 ---------- ---------- $2,205,880 $2,250,451 ========== ========== </TABLE> F-2 <PAGE> 1953 BELK DEPARTMENT STORE OF ELKIN, N.C., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $2,846,409 $2,868,175 $3,000,780 Operating costs and expenses............................... 2,689,102 2,786,581 2,812,156 ---------- ---------- ---------- Income from operations..................................... 157,307 81,594 188,624 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (69,931) (69,360) (57,202) Gain (loss) on disposal of property, plant and equipment............................................. (344) (575) (151) Gain (loss) on sale of securities........................ -- -- 82 Miscellaneous, net....................................... (3,679) (3,659) (3,518) ---------- ---------- ---------- Total other expense, net................................... (73,954) (73,594) (60,789) ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 83,353 8,000 127,835 Income tax expense (benefit)............................... 43,856 1,596 42,359 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 39,497 6,404 85,476 ---------- ---------- ---------- Net earnings............................................... 39,497 6,404 85,476 Retained earnings at beginning of period................... 943,111 982,608 981,412 Dividends paid............................................. -- (7,600) (3,800) ---------- ---------- ---------- Retained earnings at end of period......................... $ 982,608 $ 981,412 $1,063,088 ========== ========== ========== </TABLE> F-3 <PAGE> 1954 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 1955 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 1956 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; A-1 <PAGE> 1957 (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1958 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1959 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1960 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 1961 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 1962 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $3,000,781 $85,476 $185,038 $290,765 $1,215,088 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- ------- -------- -------- ---------- Adjusted Shareholders' Statement............... $3,000,781 85,476 185,038 290,765 1,215,088 ========== ------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ 101 151 151 Gain/loss on sale of securities.............. (55) (82) (82) Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- ------- -------- -------- Total non-operating items...................... 46 69 69 ------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (326) ------- -------- -------- ---------- Per Model...................................... $85,522 $185,107 $290,834 $1,214,762 ======= ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (42,619) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... -- Loans receivable from affiliates, net...... -- Liabilities Notes payable.............................. -- Current installments of long-term debt..... 241,666 Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ 468,552 Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... (1) ---------- Net debt (cash)................................ 667,598 Adjustments to eliminate less than wholly-owned subsidiaries................................. (1) ---------- Per Model...................................... $ 667,598 ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 1963 SUPPLEMENT NO. 46 <PAGE> 1964 BELK DEPARTMENT STORE OF ELKIN, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 46 <PAGE> 1965 BELK DEPARTMENT STORE OF FOREST CITY, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Department Store of Forest City, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 35.9084 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 269,529 shares of New Belk Class A Common Stock which will represent approximately 0.4492% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 1966 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 1967 BELK DEPARTMENT STORE OF FOREST CITY, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK DEPARTMENT STORE OF FOREST CITY, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Department Store of Forest City, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 35.9084 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 1968 BELK DEPARTMENT STORE OF FOREST CITY, N.C., INC. SUPPLEMENT NO. 47 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 47 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK DEPARTMENT STORE OF FOREST CITY, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 1969 THE COMPANY The Company was incorporated as a North Carolina corporation in 1936. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 35.9084 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 1970 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus.. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 10,600 shares of Common Stock. 3 <PAGE> 1971 Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the 4 <PAGE> 1972 holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate 5 <PAGE> 1973 number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. 6 <PAGE> 1974 Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of 7 <PAGE> 1975 incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 1976 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official 9 <PAGE> 1977 capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which 10 <PAGE> 1978 results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a 11 <PAGE> 1979 preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. 12 <PAGE> 1980 After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. 13 <PAGE> 1981 If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 1982 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- --------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $5,991,613 $5,991,613 0.6 $(853,147) $4,448,114 EBITDA............... 707,894 705,395 7 (853,147) 5,790,912 EBIT................. 632,304 629,805 10 (853,147) 7,151,197 Net Income........... 434,379 432,839 15 -- 6,492,585 Book Equity.......... 4,593,780 4,562,517 1 -- 4,562,517 </TABLE> 15 <PAGE> 1983 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk Department Store of Shelby, N.C., Inc. .6470% X $13,623,329 = $ 85,814 ----------- Total $ 85,814 =========== Relative Operating Value of Company $ 7,151,197 Relative Operating Value of Other Companies Owned by Company + 85,814 ----------- Total Relative Value of Company = $ 7,237,011 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk's Department Store of Boone, North Carolina, Incorporated 11.6208% X $ 7,237,011 = $ 840,999 Belk Department Store of Shelby, N.C., Inc. 6.422% X 7,237,011 = 464,761 Belk Brothers Company .3823% X 7,237,011 = 27,667 Belk Enterprises, Inc. 9.8433 X 7,237,011 = 712,361 ----------- Total $ 2,045,788 =========== Total Relative Value of Company $ 7,237,011 Total Relative Value of Company Owned by Other Belk Companies - 2,045,788 ----------- Net Relative Value of Company = $ 5,191,223 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 5,191,223 / $1,155,623,145 = .4492% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.4492% X 60,000,007) / 7,506 = 35.9084 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 1984 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 41.51 Book value per share(2)................................... 439.01 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 34.08 Book value per share...................................... 454.67 </TABLE> - --------------- (1) Based on 10,464 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 10,464 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 1985 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 6,060 $ 6,121 $ 5,992 Net income.................................................. 337 369 434 Per common share Net income (loss)(1)...................................... 32.20 35.26 41.51 Dividends................................................. 12.00 14.00 16.00 Book value(2)............................................. 392.23 413.50 439.01 Total assets................................................ 4,656 4,813 5,060 Shareholders' equity........................................ 4,104 4,327 4,594 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $4,044 $4,042 Income from operations...................................... 388 417 </TABLE> - --------------- (1) Based on 10,464 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 10,464 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 1986 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Tri City Mall in Forest City, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Matthews group in Gastonia, North Carolina. Facilities. The Company operates a 50,500 square foot store building. The Company owns the main 44,000 square foot portion of the building along with an adjacent parking area. The remaining 6,500 square feet of retail space are leased. The current term of the lease expires in 2003. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Penney and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 1987 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 4,030 38.5% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(d).................................................... 3,464 33.1% H. W. McKay Belk (Director and Executive Officer) (b)(d).... 3,458 33.0% John R. Belk (Director and Executive Officer) (b)(d)........ 3,446 32.9% Henderson Belk (Director) (c)............................... 16 * Sarah Belk Gambrell (c)..................................... 764 7.3% David Belk Cannon (Director) (e)............................ 840 8.0% Leroy Robinson (Director) (b)............................... 92 * B. Frank Matthews, II (Director and Executive Officer)...... 0 * Eugene Robinson Matthews (Executive Officer)................ 0 * David Ellis (Director) (f).................................. 1,124 10.7% Sarah Gambrell Knight....................................... 528 5.0% Belk Enterprises, Inc....................................... 1,030 9.8% Belk's Department Store of Boone, North Carolina, Incorporated.............................................. 1,216 11.6% Belk Department Store of Shelby, N.C., Inc.................. 672 6.4% All Directors and Executive Officers as a group (9 persons).................................................. 7,172 68.5% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Sarah Gambrell Knight -- 810 Colville Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; B. Frank Matthews, II, Eugene Robinson Matthews -- 2240 Remount Road, Gastonia, N.C. 28054; 28052; David Ellis -- 114 Lomond Lane, Spartanburg, S.C. 29307; Belk Enterprises, Inc., Belk's Department Stores of Boone, North Carolina, Incorporated and Belk Department Store of Shelby, N.C., Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 500 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 92 shares held by Milburn Investment Company, of which the Estate of Thomas M. Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas M. Belk, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 16 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for 20 <PAGE> 1988 Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 1,030 shares held by Belk Enterprises, Inc., 1,216 shares held by Belk's Department Store of Boone, North Carolina, Incorporated, and 672 shares held by Belk Department Store of Shelby, N.C., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of this Corporation, under authority given by the directors of each Corporation at the annual meeting of directors held in March, 1997. The Executive Committee consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (e) Includes 224 shares held by Residuary Trust U/W Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (f) Includes 480 shares held by W. David Ellis, Trustee for Judith E. Pollander U/A dated June 7, 1985. The Trustee of the trust, W. David Ellis, has sole voting and investment power with respect to such shares. 21 <PAGE> 1989 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 1990 BELK DEPARTMENT STORE OF FOREST CITY, N.C., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $1,165,896 $ 422,140 Accounts receivable, net.................................. 943,960 1,068,924 Merchandise inventory..................................... 1,122,103 1,151,472 Receivable from affiliates, net........................... 320,673 427,372 Deferred income taxes..................................... 14,180 997 Other..................................................... 45,727 45,675 ---------- ---------- Total current assets........................................ 3,612,539 3,116,580 Loans receivable from affiliates, net....................... 3,635 3,635 Investments................................................. 242,206 1,054,261 Property, plant and equipment, net.......................... 893,880 826,721 Deferred income taxes....................................... 21,806 23,934 Other noncurrent assets..................................... 38,766 34,562 ---------- ---------- $4,812,832 $5,059,693 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 429,620 $ 407,090 Accrued income taxes...................................... 27,202 26,570 ---------- ---------- Total current liabilities................................... 456,822 433,660 Other noncurrent liabilities................................ 29,186 32,253 ---------- ---------- Total liabilities........................................... 486,008 465,913 Shareholders' equity: Common stock.............................................. 1,046,400 1,046,400 Retained earnings......................................... 3,280,424 3,547,380 ---------- ---------- Total shareholders' equity.................................. 4,326,824 4,593,780 ---------- ---------- $4,812,832 $5,059,693 ========== ========== </TABLE> F-2 <PAGE> 1991 BELK DEPARTMENT STORE OF FOREST CITY, N.C., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $6,059,619 $6,121,348 $5,991,614 Operating costs and expenses............................... 5,547,507 5,574,999 5,361,319 ---------- ---------- ---------- Income from operations..................................... 512,112 546,349 630,295 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 35,547 67,176 72,255 Dividend income.......................................... 2,000 2,400 2,500 Miscellaneous, net....................................... (2,393) (6,457) (490) ---------- ---------- ---------- Total other expense, net................................... 35,154 63,119 74,265 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 547,266 609,468 704,560 Income tax expense (benefit)............................... 210,320 240,479 270,180 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 336,946 368,989 434,380 ---------- ---------- ---------- Net earnings............................................... 336,946 368,989 434,380 Retained earnings at beginning of period................... 2,846,553 3,057,931 3,280,424 Dividends paid............................................. (125,568) (146,496) (167,424) ---------- ---------- ---------- Retained earnings at end of period......................... $3,057,931 $3,280,424 $3,547,380 ========== ========== ========== </TABLE> F-3 <PAGE> 1992 BELK DEPARTMENT STORE OF FOREST CITY, NC, INC. CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1997 and 1996 ended on February 1, 1997 and February 3, 1996, respectively. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. F-4 <PAGE> 1993 BELK DEPARTMENT STORE OF FOREST CITY, NC, INC. CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) The Company's term loan agreement contains, among other provisions and covenants, restrictions relating to the creation of additional debt, except as permitted, the disposal, expansion or purchase of fixed assets, as permitted, and the purchase of investments, except as permitted. Under the most restrictive of these provisions, the Company must maintain a stated combined tangible net worth, a stated minimum current ratio, a stated ratio of total liabilities to tangible net worth, and may not exceed the cumulative prior year's depreciation expense in net capital expenditures for the fiscal year. The Company was in compliance with the combined tangible net worth restriction, the minimum current ratio restriction and the total liabilities to tangible net worth restriction as of February 1, 1997. The Company was not in compliance with the net capital expenditures, the sale of property, the additional debt, the merger, the dividends or the investment restrictions as of February 1, 1997. The Company has obtained waivers for all out of compliance conditions. (9) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (10) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. F-5 <PAGE> 1994 BELK DEPARTMENT STORE OF FOREST CITY, NC, INC. CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (11) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (12) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-6 <PAGE> 1995 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; A-1 <PAGE> 1996 (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 1997 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 1998 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 1999 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2000 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2001 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 5,991,613 $434,379 $632,304 $707,894 $4,593,780 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $ 5,991,613 434,379 632,304 707,894 4,593,780 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... -- -- -- Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. (1,541) (2,500) (2,500) Adjustment for ownership in other Belk entities.................................. (31,263) -------- -------- -------- ---------- Per Model..................................... $432,838 $629,804 $705,394 $4,562,517 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (422,140) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (427,372) Loans receivable from affiliates, net..... (3,635) Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (853,147) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $ (853,147) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2002 SUPPLEMENT NO. 47 <PAGE> 2003 BELK DEPARTMENT STORE OF FOREST CITY, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 47 <PAGE> 2004 HUDSON-BELK CO. OF FUQUAY-VARINA, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Hudson-Belk Co. of Fuquay-Varina, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 86.6616 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 208,075 shares of New Belk Class A Common Stock which will represent approximately 0.3468% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2005 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2006 HUDSON-BELK CO. OF FUQUAY-VARINA, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF HUDSON-BELK CO. OF FUQUAY-VARINA, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Hudson-Belk Co. of Fuquay-Varina, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 86.6616 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2007 HUDSON-BELK CO. OF FUQUAY-VARINA, N.C., INC. SUPPLEMENT NO. 48 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 48 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO HUDSON-BELK CO. OF FUQUAY-VARINA, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 2008 THE COMPANY The Company was incorporated as a North Carolina corporation in 1949. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 86.6616 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2009 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see " -- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 4,400 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A 3 <PAGE> 2010 Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than 4 <PAGE> 2011 the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. 5 <PAGE> 2012 Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. The bylaws enacted by the Shareholders may be affected by action of the Company Board, and the bylaws enacted by the Company Board may be affected by the Shareholders; but the Company Board may not re-enact, substantially or otherwise, a bylaw which the Shareholders have repealed or altered, nor may it repeal a bylaw enacted by the Shareholders which limits the powers of the Company Board or enhances or protects the rights of the Shareholders, without the consent of the Shareholders. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide for otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and 6 <PAGE> 2013 without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more 7 <PAGE> 2014 than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 2015 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official 9 <PAGE> 2016 capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which 10 <PAGE> 2017 results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting share of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a 11 <PAGE> 2018 preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. 12 <PAGE> 2019 After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. 13 <PAGE> 2020 If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2021 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $4,326,879 $4,326,879 0.6 $ (763,278) $3,359,405 EBITDA............... 538,387 538,387 7 (763,278) 4,531,987 EBIT................. 488,241 488,241 10 (763,278) 5,645,688 Net Income........... 300,596 300,596 15 -- 4,508,940 Book Equity.......... 2,684,715 2,673,438 1 -- 2,673,438 </TABLE> 15 <PAGE> 2022 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Hudson-Belk Company .0202% X $71,085,804 = $ 14,359 ----------- Total $ 14,359 =========== Relative Operating Value of Company $ 5,645,688 Relative Operating Value of Other Companies Owned by Company + 14,359 ----------- Total Relative Value of Company = $ 5,660,047 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Enterprises, Inc. 4.7184% X $ 5,660,047 = $ 267,064 Belk Department Store of Greenville, N.C., Inc. 23.8868% X 5,660,047 = 1,352,004 Hudson-Belk Company .5898% X 5,660,047 = 33,383 ----------- Total $ 1,652,451 =========== Total Relative Value of Company $ 5,660,047 Total Relative Value of Company Owned by Other Belk Companies - 1,652,451 ----------- Net Relative Value of Company = $ 4,007,596 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 4,007,596 / $1,155,623,145 = .3468% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.3468% X 60,000,007) / 2,401 = 86.6616 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 2023 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 88.64 Book value per share(2)................................... 791.72 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 82.26 Book value per share...................................... 1,097.30 </TABLE> - --------------- (1) Based on 3,391 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 3,391 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 2024 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 4,294 $ 4,154 $ 4,327 Net income.................................................. 221 200 301 Per common share Net income (loss)(1)...................................... 65.14 58.86 88.64 Dividends................................................. 12.50 12.50 14.50 Book value(2)............................................. 673.21 717.57 791.72 Total assets................................................ 2,594 2,681 2,996 Shareholders' equity........................................ 2,283 2,433 2,685 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED -------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $2,936 $3,154 Income from operations...................................... 268 349 </TABLE> - --------------- (1) Based on 3,391 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 3,391 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 2025 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates two retail department stores in the following locations in North Carolina: downtown Fuquay-Varina and Triangle East Center in Zebulon. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The stores are managed out of the Hudson group office in Raleigh, North Carolina. Facilities. The Company owns each store property and building, which contains 11,000 and 21,000 square feet of floor area, respectively. The Company believes that the Zebulon facility (which is accompanied by an adjacent parking area) is adequate for its current needs. The Company believes that a relocation of the existing downtown Fuquay-Varina store to a shopping center site may be necessary to the long-term viability of the Company's business in Fuquay-Varina. Competition. Specific competitors in the Company's market include Rose's and the nearby Raleigh retail market. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 2026 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)........................................... 1,802 53.1% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(e)(f)................................................. 1,293 38.1% H. W. McKay Belk (Director and Executive Officer) (b)(e)(g)................................................. 1,293 38.1% John R. Belk (Director and Executive Officer) (b)(e)(h)..... 1,289 38.0% Sarah Belk Gambrell (Director) (c)(d)....................... 564 16.7% Karl G. Hudson, Jr. (Director and Executive Officer)........ * * Karl G. Hudson, III (Director and Executive Officer)........ 116 3.4% Richard W. Hudson (Director)................................ 116 3.4% Katherine McKay Belk (b).................................... 330 9.7% Katherine Belk Morris (b)(i)................................ 300 8.8% Leroy Robinson (b).......................................... 285 8.4% Belk Department Store of Greenville, N.C., Inc.............. 810 23.9% Milburn Investment Company.................................. 285 8.4% W. J. Hudson, III (Estate).................................. 191 5.6% Virginia Hudson Beaman...................................... 350 10.3% All Directors and Executive Officers as a group (8 persons).................................................. 2,707 79.8% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Leroy Robinson, Katherine McKay and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Karl G. Hudson, Jr. -- 2416 White Oak Road, Raleigh, N.C. 27609; Karl G. Hudson, III -- Hudson-Belk Group Office, 319 Fayetteville Street, Raleigh, N.C. 27601; Richard W. Hudson -- 4325 Glenwood Avenue, Raleigh, N.C. 27612; Belk Department Store of Greenville, N.C., Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Milburn Investment Company -- ; W. J. Hudson, III (Estate) -- c/o Karl G. Hudson, Jr., 2416 White Oak Road, Raleigh, N.C. 27609 and Virginia Hudson Beaman -- . All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 165 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 285 shares held by Milburn Investment Company, of which the Estate of Thomas M. Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas M. Belk, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 120 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by 20 <PAGE> 2027 John M. Belk, Sarah Belk Gambrell, and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 12 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (e) Includes 160 shares held by Belk Enterprises, Inc., 810 shares held by Belk Department Store of Greenville, N.C., Inc. and 20 shares held by Hudson-Belk Company which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr. H. W. McKay Belk and John R. Belk. (f) Includes 18 shares held by Thomas M. Belk, Jr. as custodian for his minor children. (g) Includes 18 shares held by H. W. McKay Belk as custodian for his minor children. (h) Includes 14 shares held by John R. Belk as custodian for his minor children. (i) Includes 15 shares held by Katherine Belk Morris as custodian for her minor children. (j) Includes 191 shares held by the estate of W. J. Hudson, III, which shares are voted by the executrix, Virginia Hudson Beaman. 21 <PAGE> 2028 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 </TABLE> F-1 <PAGE> 2029 HUDSON-BELK CO. OF FUQUAY-VARINA, N.C., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ------------ ------------ <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 232,607 $ 288,909 Accounts receivable, net.................................. 617,122 708,632 Merchandise inventory..................................... 839,783 833,113 Receivable from affiliates, net........................... 257,870 474,370 Refundable income taxes................................... 10,616 -- Deferred income taxes..................................... 17,443 14,222 Other..................................................... 34,333 31,603 ---------- ---------- Total current assets........................................ 2,009,774 2,350,849 Investments................................................. 476 11,276 Property, plant and equipment, net.......................... 664,017 629,448 Other noncurrent assets..................................... 6,811 4,313 ---------- ---------- $2,681,078 $2,995,886 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 191,200 $ 192,613 Accrued income taxes...................................... 2,280 70,859 ---------- ---------- Total current liabilities................................... 193,480 263,472 Deferred income taxes....................................... 28,022 19,088 Other noncurrent liabilities................................ 26,287 28,611 ---------- ---------- Total liabilities........................................... 247,789 311,171 Shareholders' equity: Common stock.............................................. 339,100 339,100 Retained earnings......................................... 2,094,189 2,345,615 ---------- ---------- Total shareholders' equity.................................. 2,433,289 2,684,715 ---------- ---------- $2,681,078 $2,995,886 ========== ========== </TABLE> F-2 <PAGE> 2030 HUDSON-BELK CO. OF FUQUAY-VARINA, N.C., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $4,293,565 $4,153,976 $4,326,879 Operating costs and expenses............................... 3,922,879 3,819,442 3,840,012 ---------- ---------- ---------- Income from operations..................................... 370,686 334,534 486,867 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (13,045) (3,056) 2,381 Miscellaneous, net....................................... (4,514) (4,843) 1,375 ---------- ---------- ---------- Total other expense, net................................... (17,559) (7,899) 3,756 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 353,127 326,635 490,623 Income tax expense (benefit)............................... 132,223 127,043 190,027 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 220,904 199,592 300,596 ---------- ---------- ---------- Net earnings............................................... 220,904 199,592 300,596 Retained earnings at beginning of period................... 1,765,251 1,943,767 2,094,189 Dividends paid............................................. (42,388) (49,170) (49,170) ---------- ---------- ---------- Retained earnings at end of period......................... $1,943,767 $2,094,189 $2,345,615 ========== ========== ========== </TABLE> F-3 <PAGE> 2031 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 2032 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 2033 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; A-1 <PAGE> 2034 (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2035 SEC.SEC. 55-13-04 TO 55-13-19. Reserved for future codification purposes. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2036 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2037 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2038 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2039 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $4,326,879 $300,595 $488,241 $538,387 $2,684,715 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- -------- ---------- Adjusted Shareholders' Statement............... $4,326,879 300,595 488,241 538,387 2,684,715 ---------- -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ -- -- -- Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- -------- -------- -------- Total non-operating items...................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (11,276) -------- -------- -------- ---------- Per Model...................................... $300,595 $488,241 $538,387 $2,673,439 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (288,908) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... (474,370) Loans receivable from affiliates, net...... -- Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ -- Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ (763,278) Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ (763,278) ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2040 SUPPLEMENT NO. 48 <PAGE> 2041 HUDSON-BELK CO. OF FUQUAY-VARINA, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 48 <PAGE> 2042 MATTHEWS-BELK COMPANY , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Matthews-Belk Company (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 36.3163 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 1,460,062 shares of New Belk Class A Common Stock which will represent approximately 2.4334% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 2043 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2044 MATTHEWS-BELK COMPANY ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF MATTHEWS-BELK COMPANY: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Matthews-Belk Company (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 36.3163 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2045 MATTHEWS-BELK COMPANY SUPPLEMENT NO. 49 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 49 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO MATTHEWS-BELK COMPANY (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 21 INDEX TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS................................................ F-1 Unaudited Consolidated Balance Sheets..................... F-2 Unaudited Consolidated Statements of Earnings and Retained Earnings............................................... F-3 Condensed Notes to Unaudited Consolidated Historical Financial Statements................................... F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 2046 THE COMPANY The Company was incorporated as a North Carolina corporation in 1901. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 36.3163 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2047 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 51,200 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one 3 <PAGE> 2048 vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. 4 <PAGE> 2049 Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the 5 <PAGE> 2050 shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. 6 <PAGE> 2051 Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable 7 <PAGE> 2052 range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares 8 <PAGE> 2053 entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. 9 <PAGE> 2054 Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 2055 circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 2056 The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization 12 <PAGE> 2057 Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine 13 <PAGE> 2058 the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on the November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2059 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales................. $36,481,781 $30,827,824 0.6 $(4,653,940) $23,150,634 EBITDA.................... 3,227,411 2,827,066 7 (4,653,940) 24,443,402 EBIT...................... 2,130,055 1,797,365 10 (4,653,940) 22,627,590 Net Income................ 1,459,908 1,184,288 15 -- 17,764,320 Book Equity............... 32,457,552 24,580,346 1 -- 24,580,346 </TABLE> 15 <PAGE> 2060 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Gallant-Belk Company .2018% X $ 31,711,816 = $ 63,994 Belk Brothers Company .2087% X 261,959,587 = 546,710 Belk Enterprises, Inc. .5481% X 357,823,093 = 1,961,228 Belk-Matthews Company 7.2539% X 833,990 = 60,497 Belk-Matthews Company of Cherryville, N.C., Incorporated 9.0421% X 601,119 = 54,354 Belk's Department Store of Gaffney, South Carolina, Incorporated 13.0417% X 1,141,654 = 148,891 Belk Department Store of Greenville, Texas, Inc. 85.0000% X 1,266,060 = 1,076,151 Belk Department Store of Hickory, N.C., Inc. .8864% X 26,225,818 = 232,466 Belk's Department Store of Lenoir, North Carolina, Incorporated 1.4468% X 6,891,590 = 99,708 Belk Department Store of Lincolnton, N.C., Inc. 26.4722% X 7,914,736 = 2,095,205 Belk-Matthews Company of Macon, Georgia .9467% X 14,496,059 = 137,234 Belk's Department Store of Paris, Texas, Inc. 85.0000% X 3,884,954 = 3,302,211 Hudson-Belk Company .1344% X 71,085,804 = 95,539 Tags Stores, LLC 8.9830% X 15,118,749 = 1,358,117 ----------- Total $11,232,305 =========== Relative Operating Value of Company $24,580,346 Relative Operating Value of Other Companies Owned by Company + 11,232,305 ----------- Total Relative Value of Company = $35,812,651 =========== </TABLE> 16 <PAGE> 2061 The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 15.0117% X $35,812,651 = $ 5,376,088 Belk Enterprises, Inc. 1.4844% X 35,812,651 = 531,603 Belk Department Store of Lincolnton, N.C., Inc. 3.3203% X 35,812,651 = 1,189,087 Belk-Harry Company- Salisbury, N.C. .1953 X 35,812,651 = 69,942 Belk-Department Store of Shelby, N.C., Inc. 1.4648 X 35,812,651 = 524,584 ----------- Total $ 7,691,304 =========== Total Relative Value of Company $35,812,651 Total Relative Value of Company Owned by Other Belk Companies - 7,691,304 ----------- Net Relative Value of Company = $28,121,347 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $28,121,347 / $1,155,623,145 = 2.4334% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (2.4334% X 60,000,007) / 40,204 = 36.3163 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 2062 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 28.51 Book value per share(2)................................... 633.94 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 34.47 Book value per share...................................... 459.83 </TABLE> - --------------- (1) Based on 51,200 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 51,200 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 2063 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $40,191 $39,405 $36,482 Net income.................................................. 1,665 1,443 1,460 Per common share Net income (loss)(1)...................................... 32.52 28.19 28.51 Dividends................................................. 11.50 12.50 12.50 Book value(2)............................................. 571.64 604.95 633.94 Total assets................................................ 36,108 38,418 43.072 Shareholders' equity........................................ 29,268 30,973 32.458 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $23,642 $23,312 Income from operations...................................... 978 718 </TABLE> - --------------- (1) Based on 51,200 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 51,200 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 19 <PAGE> 2064 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates two retail department stores in Dixie Village Shopping Center and Eastridge Mall in Gastonia, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The Company owns and operates the Matthews group office and distribution center in Gastonia. The stores are managed out of the Matthews group office. The Matthews group office provides buying, advertising, accounting, personnel and other services to the stores in the Matthews group area, and the distribution center provides receiving, marking, and distribution services to the Company's stores in the Gastonia area. The Company also owns 85% of the outstanding capital stock of Belk Department Store of Greenville, Texas, Inc. and Belk Department Store of Paris, Texas, Inc. In addition the Company owns a building and adjacent parking area in Lincolnton, North Carolina that is leased to Belk Department Store of Lincolnton, N.C., Inc. The current term of the lease expires in 2008. The annual rental income to the Company is $256,000. Facilities. The Company leases the property upon which it built its store at Eastridge Mall, together with an adjacent parking area. The Company's building at Eastridge Mall contains approximately 204,000 square feet of floor area. The term of the lease expires in 2013. The Company leases its store building at Dixie Village Shopping Center, which contains approximately 34,000 square feet of floor area. The current term of the lease expires in 2000. The Company's Board has approved the remodeling of the Eastridge Mall store, which is scheduled to take place in 1998. The Company believes that, following such remodeling, both buildings will be adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Dillard, Penney, K-Mart, Upton's, Target, Sears and the retail stores in Franklin Center in Gastonia. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 20 <PAGE> 2065 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)........................................ 17,122 33.4% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(c)(e)(f)(g)(h)........................................ 12,615 24.6% H. W. McKay Belk (Director and Executive Officer) (b)(c)(e)(f)(i)........................................... 12,573 24.6% John R. Belk (Director and Executive Officer) (b)(c)(e)(f)(j)........................................... 12,269 24.0% Henderson Belk (Director) (d)............................... 2,136 4.2% Sarah Belk Gambrell (d)..................................... 4,316 8.4% David Belk Cannon (Director) (e)............................ 3,984 7.8% James K. Glenn, Jr. (Director) (k).......................... 2,988 5.8% Leroy Robinson (Director) (b)(c)............................ 1,414 2.8% B. Frank Matthews, II (Director and Executive Officer) (o)(p)(q)(r).............................................. 7,282 14.2% Eugene Robinson Matthews (Director and Executive Officer)... 170 * Danny Crayton (Executive Officer)........................... 0 * Elizabeth M. Welton (p)(q).................................. 4,468 8.7% Annabelle Z. Royster (r).................................... 2,740 5.4% Nations Bank, N.A. (m)(n)................................... 4,120 12.4% Elizabeth Matthews Welton Trust, Elizabeth Matthews Welton, Trustee U/A dated August 2, 1995.......................... 3,412 6.7% First Union National Bank of N.C., B. Frank Matthews, II and Annabelle Z. Royster, Co-Trustees under the Will of J. H. Matthews, Jr.............................................. 2,640 5.2% J.V. Properties............................................. 7,686 15.0% All Directors and Executive Officers as a group (10 persons).................................................. 32,043 62.6% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P.O. Box 2736, Winston-Salem, N.C. 27102; B. Frank Matthews, II, Eugene Robinson Matthews, Elizabeth Matthews Welton, Danny Crayton -- 2240 Remount Road, Gastonia, N.C. 28054; Annabelle Z. Royster -- 3621 Club Colony Drive West, Gastonia, N.C. 28052; Nations Bank, N.A. -- Sara McDonald, Nations Bank, N.A., Charlotte, N.C. 28255; Elizabeth Matthews Welton Trust, Elizabeth Matthews Welton, Trustee U/A dated August 2, 1995 -- c/o B. Frank Matthews, II, P.O. Box 2088, Matthews Belk Group Office, Gastonia, N.C. 28053; First Union National Bank of N.C., B. Frank Matthews, II and Annabelle Z. Royster, Co- Trustees under the will of J. H. Matthews, Jr. -- c/o Ms. Sherry Ross, 2 First Union Center (CMG-1159), Charlotte, N.C. 28288-1159 and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. 21 <PAGE> 2066 All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 2,480 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 348 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Includes 1,066 shares held by Milburn Investment Company, of which the Estate of Thomas M. Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas M. Belk, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (d) Includes 2,136 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (e) Includes 760 shares held by Belk Enterprises, Inc., 1,700 shares held by Belk Department Store of Lincolnton, N.C., Inc., 100 shares held by Belk-Harry Company and 750 shares held by Belk Department Store of Shelby, N.C., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (f) Includes 7,686 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (g) Includes 141 shares held by Thomas M. Belk, Jr. as custodian for the minor children of his brother, H. W. McKay Belk. (h) Includes 20 shares held by Thomas M. Belk, Jr.'s wife, Sarah F. Belk. (i) Includes 20 shares held by held by H. W. McKay Belk's, Jr.'s wife, Nina F. Belk. (j) Includes 20 shares held by John R. Belk's wife, Kimberly D. Belk. (k) Includes 1,944 shares held by James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox, 312 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al. and 628 shares held by John Belk Stevens Trust U/W ITEM III, Section B f/b/o Mary S. Whelchel. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (l) Includes 328 shares held by Residuary Trust U/W Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (m) Includes 380 shares held by NationsBank as Trustee for the Robert L. Doughton II Revocable Trust dated 3/25/97 and 1,822 shares held by Sara Dew Misner and North Carolina National Bank, Co-Trustees for Daisy Doughton Lange U/A dated November 5, 1965. (n) Includes 1,918 shares held by Daisy Doughton Lange and North Carolina National Bank, Trustees for Robert L. Doughton, II under Agreement dated July 21, 1965. The named Trustees have voting and investment power with respect to such shares. (o) Includes 656 shares held by B. Frank Matthews, II's wife, Betty Choate Matthews. (p) Includes 3,412 shares held by Elizabeth Matthews Welton Trust, Elizabeth Matthews Welton, Trustee U/A dated August 2, 1995. The Trustee has voting and investment power with respect to such shares. 22 <PAGE> 2067 (q) Includes 1,056 shares held by Robinson Investment Company. B. Frank Matthews, II and Elizabeth M. Welton share the voting and investment power with respect to such shares. (r) Includes 2,640 shares held by First Union National Bank of N.C., B. Frank Matthews, II and Annabelle Z. Royster, Co-Trustees under the Will of J.H. Matthews, Jr. The named Trustees have voting and investment power with respect to such shares. 23 <PAGE> 2068 INDEX TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Consolidated Balance Sheets....................... F-2 Unaudited Consolidated Statements of Earnings and Retained Earnings.................................................. F-3 Condensed Notes to Unaudited Consolidated Historical Financial Statements...................................... F-4 </TABLE> F-1 <PAGE> 2069 MATTHEWS-BELK COMPANY UNAUDITED CONSOLIDATED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 5,645,057 $ 5,044,766 Accounts receivable, net.................................. 7,361,429 7,749,569 Merchandise inventory..................................... 8,519,706 8,077,692 Deferred income taxes..................................... 196,721 359,166 Other..................................................... 915,539 586,430 ----------- ----------- Total current assets........................................ 22,638,452 21,817,623 Loans receivable from affiliates, net....................... 3,215,099 3,215,099 Investments................................................. 3,714,213 8,281,914 Property, plant and equipment, net.......................... 8,481,360 9,370,223 Other noncurrent assets..................................... 368,631 387,459 ----------- ----------- $38,417,755 $43,072,318 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 2,737,003 $ 3,874,827 Payables to affiliates, net............................... 1,274,471 1,932,212 Accrued income taxes...................................... 200,733 158,627 ----------- ----------- Total current liabilities................................... 4,212,207 5,965,666 Deferred income taxes....................................... 856,230 1,464,911 Long-term debt, excluding current installments.............. -- 561,857 Other noncurrent liabilities................................ 1,706,531 1,922,323 ----------- ----------- Total liabilities........................................... 6,774,968 9,914,757 Minority interest........................................... 669,601 700,009 Shareholders' equity: Common stock.............................................. 5,120,000 5,120,000 Net unrealized gain (loss) on investments, net of income taxes.................................................. 1,465,893 2,130,352 Retained earnings......................................... 24,387,293 25,207,200 ----------- ----------- Total shareholders' equity.................................. 30,973,186 32,457,552 ----------- ----------- $38,417,755 $43,072,318 =========== =========== </TABLE> F-2 <PAGE> 2070 MATTHEWS-BELK COMPANY UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $41,396,846 $40,648,643 $37,659,413 Less: Leased Sales...................................... 1,205,668 1,243,742 1,177,632 ----------- ----------- ----------- Net sales............................................... 40,191,178 39,404,901 36,481,781 Operating costs and expenses............................ 37,697,218 37,664,373 34,624,104 ----------- ----------- ----------- Income from operations.................................. 2,493,960 1,740,528 1,857,677 ----------- ----------- ----------- Other income (expense): Interest, net......................................... 50,199 217,509 119,299 Dividend income....................................... 95,939 92,908 111,014 Gain (loss) on disposal of property, plant and equipment.......................................... (23,172) (8,648) 108 Gain (loss) on sale of securities..................... (20,095) -- -- Miscellaneous, net.................................... 61,886 139,059 48,272 ----------- ----------- ----------- Total other expense, net................................ 164,757 440,828 278,693 ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 2,658,717 2,181,356 2,136,370 Income tax expense (benefit)............................ 965,890 761,388 749,792 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 1,692,827 1,419,968 1,386,578 Equity in earnings (loss) of unconsolidated entity, net of tax................................................ -- 57,298 103,738 Minority interest in (earnings) loss of unconsolidated subsidiaries.......................................... 27,951 33,934 30,408 ----------- ----------- ----------- Net earnings............................................ 1,664,876 1,443,332 1,459,908 Retained earnings at beginning of period................ 21,995,562 23,071,638 24,387,293 Dividends paid.......................................... (588,800) (640,000) (640,000) Retained earnings adjustments........................... -- 512,323 (1) ----------- ----------- ----------- Retained earnings at end of period...................... $23,071,638 $24,387,293 $25,207,200 =========== =========== =========== </TABLE> F-3 <PAGE> 2071 MATTHEWS-BELK COMPANY -- GASTONIA, N.C. AND SUBSIDIARIES CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company." The Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1997, 1996 and 1995 ended on February 1, 1997, February 3, 1996, and January 31, 1995 respectively. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. F-4 <PAGE> 2072 MATTHEWS-BELK COMPANY -- GASTONIA, N.C. AND SUBSIDIARIES CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1995 and 1996 and amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements F-5 <PAGE> 2073 MATTHEWS-BELK COMPANY -- GASTONIA, N.C. AND SUBSIDIARIES CONDENSED NOTES TO UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. (12) RETAINED EARNINGS ADJUSTMENT Adjustment to Retained Earnings of the Company at February 3, 1996, is due to placing Belk Department Store of Lincolnton, N.C., Inc. on the equity method of accounting. F-6 <PAGE> 2074 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2075 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2076 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2077 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2078 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision (a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions (a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2079 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2080 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ---------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................. $36,481,781 $1,459,908 $2,130,055 $3,227,411 $32,457,552 Adjustments to eliminate less than wholly-owned subsidiaries................. (5,653,957) (259,645) (307,932) (375,587) (4,333,578) ----------- ---------- ---------- ---------- ----------- Adjusted Shareholders' Statement............ $30,827,824 1,200,263 1,822,123 2,851,824 28,123,974 =========== ---------- ---------- ---------- ----------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............. (70) (108) (108) Gain/loss on sale of securities........... -- -- -- Impairment loss........................... -- -- -- Equity in earnings of unconsolidated subsidiaries............................ -- -- -- Gain/loss on discontinued operations...... -- -- -- Adjustment to tax expense................. -- -- -- -- ---------- ---------- ---------- Total non-operating items................... (70) (108) (108) ---------- ---------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities..................... (15,905) (24,650) (24,650) Adjustment for ownership in other Belk entities................................ (3,543,628) ---------- ---------- ---------- ----------- Per Model................................... $1,184,288 $1,797,365 $2,827,066 $24,580,346 ========== ========== ========== =========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................. $(5,044,766) Negative cash balances reclassified to accounts payable...................... -- Receivables from affiliates, net........ -- Loans receivable from affiliates, net... (3,215,099) Liabilities Notes payable........................... -- Current installments of long-term debt.................................. -- Current portion of obligations under capital leases........................ -- Payables to affiliates, net............. 1,932,212 Long-term debt, excluding current installments.......................... 561,857 Obligations under capital leases, excluding current portion............. -- Loans payable to affiliates, net........ -- ----------- Net debt (cash)............................. (5,765,796) Adjustments to eliminate less than wholly-owned subsidiaries................. 1,111,856 ----------- Per Model................................... $ 4,653,940 =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2081 SUPPLEMENT NO. 49 <PAGE> 2082 MATTHEWS-BELK COMPANY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 49 <PAGE> 2083 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Department Store of Greenville, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 157.7529 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 914,652 shares of New Belk Class A Common Stock which will represent approximately 1.5244% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2084 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2085 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Department Store of Greenville, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 157.7529 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2086 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. SUPPLEMENT NO. 50 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 50 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 General................................................... 20 Results of Operations..................................... 20 Comparison of Nine Months Ended November 1, 1997 and November 2, 1996........................................ 20 Comparison of Fiscal Years Ended February 1, 1997 and February 3, 1996........................................ 21 Comparison of Fiscal Years Ended February 3, 1996 and January 31, 1995........................................ 21 Seasonality and Quarterly Fluctuations.................... 22 Liquidity and Capital Resources........................... 22 Impact of Inflation....................................... 23 BUSINESS OF THE COMPANY..................................... 23 SECURITY OWNERSHIP OF THE COMPANY........................... 24 INDEX TO HISTORICAL FINANCIAL STATEMENTS.................... F-1 Report of KPMG Peat Marwick LLP, Independent Auditors..... F-2 Balance Sheets............................................ F-3 Statements of Operations.................................. F-4 Statements of Shareholders' Equity........................ F-5 Statements of Cash Flows.................................. F-6 Notes to Financial Statements............................. F-7 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 2087 THE COMPANY The Company was incorporated as a North Carolina corporation in 1938. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 157.7529 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2088 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 10,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one 3 <PAGE> 2089 vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. 4 <PAGE> 2090 Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the 5 <PAGE> 2091 shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. 6 <PAGE> 2092 Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable 7 <PAGE> 2093 range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares 8 <PAGE> 2094 entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. 9 <PAGE> 2095 Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 2096 circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 2097 The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholder's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholder's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization 12 <PAGE> 2098 Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine 13 <PAGE> 2099 the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2100 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $41,198,142 $41,198,142 0.6 $11,099,151 $13,619,734 EBITDA............... 2,680,540 2,575,838 7 11,099,151 6,931,715 EBIT................. 1,609,761 1,505,059 10 11,099,151 3,951,439 Net Income........... 378,565 312,029 15 -- 4,680,435 Book Equity.......... 20,283,036 12,156,589 1 -- 12,156,589 </TABLE> 15 <PAGE> 2101 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk of Asheboro, N.C., Inc. 18.3590% X $10,609,421 = $ 1,947,784 Belk's Department Store of Asheville, North Carolina, Incorporated 11.9502 X 8,095,359 = 967,412 Belk's Department Store of Dunn, North Carolina, Incorporated 13.3712 X 14,191,195 = 1,897,533 Belk Department Store of Elkin, N.C., Inc. 4.8684 X 1,368,240 = 66,611 Belk's Department Store of Florence, S.C., Incorporated 10.1627 X 24,968,405 = 2,537,464 Belk's Department Store of Morehead City, N.C., Inc. 4.0541 X 10,315,587 = 418,204 Belk's Department Store of New Bern, N.C., Incorporated 10.6728 X 7,893,721 = 842,481 Hudson-Belk Co. of Fuquay-Varina, N.C., Inc. 23.8868 X 5,660,048 = 1,352,004 Belk's Department Store of Jacksonville, N.C., Inc. 6.0189 X 29,859,953 = 1,797,241 ----------- Total $11,826,734 =========== Relative Operating Value of Company $13,619,734 Relative Operating Value of Other Companies Owned by Company + 11,826,734 ----------- Total Relative Value of Company = $25,446,468 =========== </TABLE> 16 <PAGE> 2102 The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk's Department Store of Asheville, North Carolina, Incorporated 1.2179% X $25,446,468 = $ 309,912 Belk Brothers Company 8.5493 X 25,446,468 = 2,175,495 Belk Enterprises, Inc. 20.7164 X 25,446,468 = 5,271,592 Belk Department Store of Clinton, N.C. Inc. .2866 X 25,446,468 = 72,930 ----------- Total $ 7,829,929 =========== Total Relative Value of Company $25,446,468 Total Relative Value of Company Owned by Other Belk Companies - 7,829,929 ----------- Net Relative Value of Company = $17,616,539 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $17,616,539 / $1,155,623,145 = 1.5244% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (1.5244% X 60,000,007) / 5,798 = 157.7529 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 2103 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share, and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR NINE MONTHS ENDED FEBRUARY 1, ENDED NOVEMBER 1, 1997 1997 ----------------- ----------------- <S> <C> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 45.20 $ (11.87) Book value per share(2)................................... 2,421.85 2,399.99 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 .28 Book value per share(4)................................... 12.66 12.79 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 149.74 44.48 Book value per share...................................... 1,997.46 2,017.44 </TABLE> - --------------- (1) Based on 8,375 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997 and the nine-month period ended November 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 8,375 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the periods presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying the New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 2104 SELECTED HISTORICAL FINANCIAL INFORMATION The following selected historical financial information of the Company presented below under the captions "Selected Statement of Income Data" and "Selected Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended February 1, 1997 are derived from the financial statements of the Company. The financial statements as of February 1, 1997 and for the year then ended have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Such financial statements, and the report thereon, are included elsewhere in this Prospectus Supplement. The selected data presented below for, and as of the end of, each of the years in the four-year period ended February 3, 1996 and for the nine-month periods ended November 2, 1996 and November 1, 1997, and as of November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. The information presented below under the caption "Selected Operating Data" is unaudited. Selected historical combined and pro forma financial data for the Belk Companies is included in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED ------------------------------------------------------------------- ------------------------- FEBRUARY 2, FEBRUARY 1, JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1993 1994 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> SELECTED STATEMENT OF INCOME Revenues:................ 37,425,526 37,486,054 38,498,133 39,823,181 41,243,896 28,063,310 28,312,733 Cost of goods sold....... 24,818,048 25,287,569 25,927,047 28,033,052 28,963,777 19,787,034 19,976,382 Depreciation and amortization........... 776,291 869,165 847,517 764,145 1,070,780 754,437 784,227 Income from continuing operations............. 1,593,796 1,347,143 1,547,267 796,437 378,565 (136,134) (99,400) Net income (loss)........ 1,593,796 1,502,576 1,547,267 796,437 378,565 (136,134) (99,400) Net income (loss) per share(1)............... 190.30 179.41 184.75 95.10 45.20 (16.25) (11.87) Dividends per share...... -- 10.00 15.00 15.00 15.00 15.00 10.00 Weighted average number of shares outstanding............ 8,375 8,375 8,375 8,375 8,375 8,375 8,375 SELECTED BALANCE SHEET DATA: Accounts receivable -- net...... 5,736,510 5,388,337 5,548,080 5,751,013 6,724,679 6,279,325 6,624,297 Merchandise inventories............ 8,820,725 8,690,156 8,775,761 8,853,131 10,704,953 12,741,347 12,107,487 Working capital.......... 8,784,481 10,613,789 12,618,582 12,749,393 3,524,353 2,822,712 10,702,406 Total assets............. 24,659,072 23,325,313 23,504,513 24,354,609 38,133,797 38,367,693 38,032,210 Short-term debt.......... -- -- -- -- -- -- -- Long-term debt........... -- -- -- -- -- -- 7,810,714 Capitalized lease obligations............ -- -- -- -- -- -- -- Shareholders' equity..... 16,518,816 17,937,642 19,359,285 20,030,096 20,283,036 19,768,337 20,099,886 Book value per share(2)............... 1,972.40 2,141.81 2,311.56 2,391.65 2,421.85 2,360.40 2,399.99 SELECTED OPERATING DATA: Number of stores at end of period.............. 9 8 8 7 7 7 7 Comparable store net revenue increases (decreases)............ 2.4% 1.9% 2.7% 2.3% (4.4)% (4.0)% (2.1)% </TABLE> - --------------- (1) Based on the weighted average number of shares of Common Stock outstanding for each period presented. (2) Based on the number of shares of Common Stock outstanding at the end of each period presented. 19 <PAGE> 2105 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the historical financial condition and results of operations of the Belk Department Store of Greenville, N.C., Inc. for each of the fiscal years ended January 31, 1995, February 3, 1996, and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 which should be read in conjunction with the historical financial statements, including the notes thereto, included elsewhere in this Proxy Statement/Prospectus. GENERAL Certain Components of Net Income. Revenues include sales from retail operations and leased departments. Cost of goods sold include cost of merchandise, buying, and occupancy expense. Selling, general, and administrative expense ("SG&A") includes payroll, advertising, credit, and depreciation expense. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship to revenues of certain items in the Company's statements of income and other pertinent financial data. <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995(A) 1996(A) 1997(A) 1996 1997 ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold....................... 67.3 70.4 70.2 70.5 70.6 Selling, general and administrative expenses............................... 25.7 25.9 26.3 28.1 27.5 Income from operations................... 7.0 3.7 3.5 1.4 1.9 Interest expense, net.................... 0.3 0.5 2.5 2.4 2.9 Income tax expense (benefit)............. 2.3 1.1 0.4 (0.3) (0.3) Net income (loss)........................ 4.0 2.0 0.9 (0.5) (0.4) Comparable stores revenues increase (decrease)............................. 2.7 2.3 (4.4) (4.0) (2.1) Number of stores Opened................................. 0 0 0 0 0 Closed................................. 0 1 0 0 0 Total -- end of period................... 8 7 7 7 7 </TABLE> - --------------- (a) The fiscal years ended February 1, 1997 and January 31, 1995 consisted of 52 weeks. The fiscal year ended February 3, 1996 consisted of 368 days. COMPARISON OF NINE MONTHS ENDED NOVEMBER 1, 1997 AND NOVEMBER 2, 1996 Revenues. The Company's revenues for the nine months ended November 1, 1997 increased 0.9%, or $0.2 million, over the same period in 1996 from $28.1 million to $28.3 million. The increase was attributable to a revenue increase at the Greenville, North Carolina store at Plaza Mall, which was remodeled in fiscal year 1997, of $0.5 million. Comparable store revenues for the nine months ended November 1, 1997 decreased 2.1% with the largest decrease in the Greenville, North Carolina store at Carolina East Mall which is in the same market as the Plaza Mall store. Cost of Goods Sold. As a percentage of revenues, cost of goods sold increased from 70.5% for the nine months ended November 2, 1996 to 70.6% for the nine months ended November 1, 1997. Cost of goods sold increased 1.0%, or $0.2 million, from $19.8 million for the nine months ended November 2, 1996 to $20.0 million for the nine months ended November 1, 1997 primarily as a result of the increase in revenues. Selling, General, and Administrative Expenses. As a percentage of revenues, SG&A decreased from 28.1% for the nine months ended November 2, 1996 to 27.5% for the nine months ended November 1, 1997. SG&A decreased 1.0%, or $0.1 million, from $7.9 million for the nine months ended November 2, 1996 to 20 <PAGE> 2106 $7.8 million for the nine months ended November 1, 1997. This decrease was primarily due to a decrease in payroll as a percentage of revenues of 0.8%, offset partially by increases in advertising and bad debts, net. Interest Expense, Net. Interest expense, net was $0.7 million for the nine months ended November 2, 1996 and $0.8 million for the nine months ended November 1, 1997. Net Loss. Net loss decreased $36.7 thousand to 0.4% of revenues for the nine months ended November 1, 1997 compared to 0.5% of revenues for the same period in 1996. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 Revenues. The Company's revenues in fiscal year 1997 increased 3.6%, or $1.4 million, over fiscal year 1996 from $39.8 million to $41.2 million. The increase was attributable to increased revenues at the Greenville, North Carolina store at Greenville Plaza Mall, which amounted to $4.1 million. This increase was partially offset by a decrease in revenues at the Greenville, North Carolina store at Carolina East Mall in the same market of $1.2 million and the Farmville, North Carolina store of $1.0 million. On a comparable store revenues basis, revenues decreased 4.4% compared to the first 52 weeks of fiscal year 1996. These decreases were primarily a result of the decrease in revenues at the Greenville Carolina East Mall store. Cost of Goods Sold. As a percentage of revenues, cost of goods sold decreased from 70.4% in fiscal year 1996 to 70.2% in fiscal year 1997. Cost of goods sold increased 3.3%, or $0.9 million, from $28.0 million in fiscal year 1996 to $28.9 million in fiscal year 1997 primarily due to an increase in revenues and increases in buying and occupancy expense. Selling, General, and Administrative Expenses. As a percentage of revenues, SG&A increased from 25.9% in fiscal year 1996 to 26.3% in fiscal year 1997. SG&A increased 5.2%, or $0.5 million, primarily due to increases in selling payroll expense, advertising, and depreciation expense. Interest Expense, Net. Interest expense, net was $0.2 million in fiscal year 1996 and $1.0 million in fiscal year 1997. In fiscal year 1997, interest expense, net increased $0.8 million as a result of increased borrowings from affiliates to fund capital expenditures and purchases of investments. Net Income. Net income decreased $0.4 million to 0.9% of revenues in fiscal year 1997 compared to 2.0% of revenues in fiscal year 1996. This decrease was primarily a result of the increase in interest expense, net discussed above. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 3, 1996 AND JANUARY 31, 1995 Revenues. The Company's revenues in fiscal year 1996 increased by 3.4% or $1.3 million from $38.5 million in fiscal year 1995 to $39.8 million in fiscal year 1996. Adjusting for the impact of the additional days in fiscal year 1996, comparable store revenues increased 2.3%. This increase was primarily due to an increase in the Greenville Carolina East Mall store. Cost of Goods Sold. As a percentage of revenues, cost of goods sold increased from 67.3% in fiscal year 1995 to 70.4% in fiscal year 1996. Cost of goods sold increased 8.1%, or $2.1 million, from $25.9 million in fiscal year 1995 to $28.0 million in fiscal year 1996 primarily due to a increase in revenues. Cost of merchandise increased significantly at both the Greenville Carolina East Mall and Greenville Plaza Mall stores as a result of higher markdowns. In fiscal year 1996, higher markdowns were experienced due to the liquidation of aged inventory at all stores. Selling, General, and Administrative Expenses. As a percentage of revenues, SG&A increased from 25.7% in fiscal year 1995 to 25.9% in fiscal year 1996. SG&A increased 4.2%, or $0.4 million, in fiscal year 1996 as compared to fiscal year 1995. The increase was primarily attributable to an increase in advertising and administrative expense. Interest Expense, Net. Interest expense, net increased $66.7 thousand, from $129.4 thousand for fiscal year 1995 to $196.1 thousand for fiscal year 1996. 21 <PAGE> 2107 Net Income. Net income decreased 48.5%, or $0.8 million, from 4.0% of revenues in fiscal year 1995 to 2.0% of revenues in fiscal year 1996. The decrease was primarily attributable to an increase of 3.1% in cost of goods sold, as a percentage of revenues, related to the liquidation of aged inventory. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenues, operating income, and net income. The highest revenue period for the Company is the fourth quarter which includes the Christmas selling season. A disproportionate amount of the Company's revenues and a substantial amount of the Company's operating and net income are realized during the fourth quarter. If for any reason the Company's revenues were below seasonal norms during the fourth quarter, the Company's annual results of operations could be adversely affected. The Company's inventory levels generally reach their highest in anticipation of increased revenues during these months. The following table illustrates the seasonality of revenues by quarter as a percentage of the full-year for the fiscal years indicated. <TABLE> <CAPTION> 1995 1996 1997 ---- ---- ---- <S> <C> <C> <C> First quarter............................................... 21.4% 20.8% 22.2% Second quarter.............................................. 21.1 21.3 21.4 Third quarter............................................... 24.3 24.1 24.4 Fourth quarter.............................................. 33.2 33.8 32.0 </TABLE> The Company's quarterly results of operations could also fluctuate significantly as a result of a variety of factors, including the timing of new store openings and remodelings. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash on hand, cash flow from operations, and borrowings under credit facilities. During the nine months ended November 1, 1997, net cash used by operations was $8.2 million, compared to net cash provided by operations of $10.5 million during the same period in 1996. The decrease in cash provided by operations was primarily a result of the change in payables to affiliates. An investment in additional inventory was made to support the revenues growth in the Greenville Plaza Mall store in the amount of $3.9 million and $1.4 million during the nine months ended November 2, 1996 and November 1, 1997, respectively. In addition, during the nine months ended November 2, 1996 accounts receivable from customers increased resulting in a use of cash of $0.5 million. In fiscal year 1997, the Company had sufficient cash flows from operations and credit facilities to fund its working capital needs, capital expenditures, and equity purchases. Net cash provided by operations was $0.6 million, $1.7 million and $10.5 million for the 1995, 1996 and 1997 fiscal years, respectively. The increase in cash flow in fiscal year 1997 was primarily attributable to an increase in payables to affiliates, offset by increased customer accounts receivable and an additional investment in merchandise inventory. Investing activities included capital expenditures, primarily for remodeled or expanded stores and the purchases and sales of property and equipment related to store openings and closings. Capital expenditures, primarily for new and remodeled stores, amounted to $43.8 thousand in the first nine months of fiscal year 1998 and $2.3 million in the comparable period in fiscal year 1997. Capital expenditures amounted to $0.2 million, $1.6 million and $2.4 million for the 1995, 1996 and 1997 fiscal years, respectively. In fiscal year 1996, the Company opened a new Men's, Kids and Home unit in the Greenville Plaza Mall. In addition, the Plaza Mall Women's store was remodeled. The Farmville, North Carolina store was closed in fiscal year 1996. The Company operated 8, 7 and 7 department stores, respectively for the 1995, 1996 and 1997 fiscal years. The Mount Olive and Plymouth Landing stores will close January 31, 1998. Financing activities included purchase of common stock and payments to or additional borrowings from affiliates or credit facilities. The Company's total indebtedness at November 1, 1997 was $7.8 million, comprised of $1.1 million of current installments on long-term borrowings and $6.7 million of long-term 22 <PAGE> 2108 borrowings. The $7.8 million of total indebtedness is variable rate debt based on LIBOR. The Company has entered into interest rate swap agreements with various financial institutions to manage the exposure to changes in interest rates on its LIBOR based indebtedness. During fiscal year 1997, the Company purchased common stock in affiliates from several major shareholders for $8.1 million. The Company has accounted for the investment using the equity method. The Company has exhausted its available financing capabilities during its recent expansion. IMPACT OF INFLATION While it is difficult to determine the precise effects of inflation, management does not believe inflation had a material impact on the financial statements for the periods presented. BUSINESS OF THE COMPANY General. The Company operates four retail department stores in the following locations in North Carolina: Carolina East Mall and Plaza Mall in Greenville, Roanoke Landing in Williamston, and Parkwood Mall in Wilson. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The stores are managed out of the Howard group office in Fayetteville, North Carolina. The Company operates its retail store out of two locations at Plaza Mall in Greenville. In February 1998, the Company sold the leases and fixed assets of its stores in Mt. Olive and Plymouth, North Carolina to Peebles, Inc. In addition, the Company closed its location in downtown Wilson in January 1998. Facilities. The Company operates four stores, of which one is leased under a long-term lease and three are owned by the Company; however, at Plaza Mall in Greenville, the Company owns the 50,000 square foot "main" store, but also leases the 54,000 square foot "men's" store. The leases have termination dates of 2004 and 2009. The floor space of the leased buildings ranges from 54,000 to 93,000 square feet. The other owned buildings range from 46,000 to 120,000 square feet. The Company believes the facilities are generally adequate to meet its current needs, although the Company's Board has approved a renovation of the Wilson Store, which is scheduled for 1998. Competition. Specific competitors in the Company's market include Brody's, Sears, Penney, and Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 23 <PAGE> 2109 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)(g)(h).................................. 5,212 62.2% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(d)(g)(h).............................................. 3,948 47.1% H. W. McKay Belk (Director and Executive Officer) (b)(d)(g)(h).............................................. 3,948 47.1% John R. Belk (Director and Executive Officer) (b)(d)(g)(h).............................................. 3,932 46.9% Sarah Belk Gambrell (e)(f).................................. 1,689 20.2% Katherine McKay Belk (b)(d)................................. 1,206 14.4% Katherine Belk Morris (b)(d)................................ 1,375 16.4% Leroy Robinson (b)(d)....................................... 1,203 14.4% Troy M. Howard (Director and Executive Officer)............. 0 * William R. Young (Executive Officer)........................ 0 * Belk Enterprises, Inc....................................... 1,735 20.7% J.V. Properties............................................. 716 8.5% Montgomery Investment Company............................... 476 5.7% Milburn Investment Company.................................. 760 9.1% Brothers Investment Company................................. 443 5.3% All Directors and Executive Officers as a group (5 persons).................................................. 5,700 68.1% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Troy M. Howard and William R. Young -- 4525 Camp Ground Road, Fayetteville, N.C. 28314. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 476 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 443 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Includes 11 shares held by Mary Claudia Belk Irrevocable Trust dated 1/4/94. Claudia W. Belk, Trustee, is John M. Belk's wife. (d) Includes 760 shares held by Milburn Investment Company, of which the Estate of Thomas M. Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas 24 <PAGE> 2110 M. Belk, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., W. H. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (e) Includes 400 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (f) Includes 9 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (g) Includes 102 shares held by Belk's Department Store of Asheville, North Carolina, Incorporated, 1,735 shares held by Belk Enterprises, Inc. and 24 shares held by Belk Department Store of Clinton, N.C., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (h) Includes 716 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, has voting and investment power with respect to such shares. 25 <PAGE> 2111 INDEX TO HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Report of KPMG Peat Marwick LLP, Independent Auditors....... F-2 Balance Sheets.............................................. F-3 Statements of Operations.................................... F-4 Statements of Shareholders' Equity.......................... F-5 Statements of Cash Flows.................................... F-6 Notes to Financial Statements............................... F-7 </TABLE> F-1 <PAGE> 2112 INDEPENDENT AUDITORS' REPORT The Board of Directors of Belk Department Store of Greenville, N.C., Inc. We have audited the accompanying balance sheet of Belk Department Store of Greenville, N.C., Inc. as of February 1, 1997, and the related statements of operations, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Belk Department Store of Greenville, N.C., Inc. at February 1, 1997, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Charlotte, North Carolina November 14, 1997 F-2 <PAGE> 2113 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. BALANCE SHEETS <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents............................. $ 827,821 $ 767,596 $ 272,828 Accounts receivable, net.............................. 5,751,013 6,724,679 6,624,297 Merchandise inventory................................. 8,853,131 10,704,953 12,107,487 Receivables from affiliates........................... 358,885 1,964,802 1,718,468 Deferred income taxes................................. 62,643 51,289 65,554 Prepaid expenses and other current assets............. 564,103 439,086 405,941 ----------- ----------- ----------- Total current assets.................................... 16,417,596 20,652,405 21,194,575 Investments............................................. 18,990 7,257,423 7,257,423 Investment in unconsolidated entity..................... -- 871,774 899,929 Property and equipment, net............................. 7,555,428 8,873,263 8,132,883 Deferred income taxes................................... 134,207 179,226 179,226 Other assets............................................ 228,388 299,706 368,174 ----------- ----------- ----------- Total assets............................................ $24,354,609 $38,133,797 $38,032,210 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable...................................... $ 2,784,607 $ 2,719,636 $ 2,698,611 Accrued expenses...................................... 694,271 558,416 857,014 Payables to affiliates................................ 180,681 13,850,000 5,750,000 Current installments of long-term debt................ -- -- 1,157,144 Accrued income taxes.................................. 8,644 -- 29,400 ----------- ----------- ----------- Total current liabilities............................... 3,668,203 17,128,052 10,492,169 Long-term debt, excluding current installments.......... -- -- 6,653,570 Deferred compensation................................... 540,657 577,841 641,828 Other noncurrent liabilities............................ 115,653 144,868 144,757 ----------- ----------- ----------- Total liabilities....................................... 4,324,513 17,850,761 17,932,324 ----------- ----------- ----------- Shareholders' equity: Common stock, $100 par value; authorized 23,000 shares; issued and outstanding 8,375 shares........ 837,500 837,500 837,500 Retained earnings..................................... 19,192,596 19,445,536 19,262,386 ----------- ----------- ----------- Total shareholders' equity.............................. 20,030,096 20,283,036 20,099,886 ----------- ----------- ----------- Total liabilities and shareholders' equity.............. $24,354,609 $38,133,797 $38,032,210 =========== =========== =========== </TABLE> See accompanying notes to financial statements. F-3 <PAGE> 2114 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. STATEMENTS OF OPERATIONS <TABLE> <CAPTION> YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Revenues........................ $38,498,133 $39,823,181 $41,243,896 $28,063,310 $28,312,733 Cost of goods sold (including occupancy and buying expenses)..................... 25,927,047 28,033,052 28,963,777 19,787,034 19,976,382 Selling, general and administrative expenses....... 9,894,934 10,305,876 10,841,948 7,879,626 7,798,302 ----------- ----------- ----------- ----------- ----------- Income from operations.......... 2,676,152 1,484,253 1,438,171 396,650 538,049 Interest expense, net........... (129,433) (196,150) (1,014,047) (682,988) (832,154) Gain (loss) on sale of property and equipment................. 6 (12,322) 16,111 16,012 200 Other income (expense), net..... (100,452) (25,009) 67,074 10,041 74,604 ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes, and equity in earnings of unconsolidated entities.... 2,446,273 1,250,772 507,309 (260,285) (219,301) Income taxes.................... 899,006 454,335 184,924 (95,000) (80,000) ----------- ----------- ----------- ----------- ----------- Income (loss) before equity in earnings of unconsolidated entities...................... 1,547,267 796,437 322,385 (165,285) (139,301) Equity in earnings of unconsolidated entities, net of income taxes............... -- -- 56,180 29,151 39,901 ----------- ----------- ----------- ----------- ----------- Net income (loss)............... $ 1,547,267 $ 796,437 $ 378,565 $ (136,134) $ (99,400) =========== =========== =========== =========== =========== Earnings (loss) per share....... $ 184.75 $ 95.10 $ 45.20 $ (16.25) $ (11.87) =========== =========== =========== =========== =========== Weighted average shares......... 8,375 8,375 8,375 8,375 8,375 =========== =========== =========== =========== =========== </TABLE> See accompanying notes to financial statements. F-4 <PAGE> 2115 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. STATEMENTS OF SHAREHOLDERS' EQUITY <TABLE> <CAPTION> COMMON RETAINED STOCK EARNINGS TOTAL -------- ----------- ----------- <S> <C> <C> <C> Balance at February 1, 1994 (unaudited)................... $837,500 $17,100,142 $17,937,642 Cash dividends (unaudited)................................ -- (125,625) (125,625) Net income (unaudited).................................... -- 1,547,267 1,547,267 -------- ----------- ----------- Balance at January 31, 1995 (unaudited)................... 837,500 18,521,784 19,359,284 Cash dividends (unaudited)................................ -- (125,625) (125,625) Net income (unaudited).................................... -- 796,437 796,437 -------- ----------- ----------- Balance at February 3, 1996............................... 837,500 19,192,596 20,030,096 Cash dividends............................................ -- (125,625) (125,625) Net income................................................ -- 378,565 378,565 -------- ----------- ----------- Balance at February 1, 1997............................... 837,500 19,445,536 20,283,036 Cash dividends (unaudited)................................ -- (83,750) (83,750) Net loss (unaudited)...................................... -- (99,400) (99,400) -------- ----------- ----------- Balance at November 1, 1997 (unaudited)................... $837,500 $19,262,386 $20,099,886 ======== =========== =========== </TABLE> See accompanying notes to financial statements. F-5 <PAGE> 2116 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Cash flows from operating activities: Net income (loss)....................... $ 1,547,267 $ 796,437 $ 378,565 $ (136,134) $ (99,400) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Deferred income taxes................... (201,467) 1,429 (33,665) (12,963) (14,265) Depreciation and amortization........... 847,517 764,145 1,070,780 754,437 784,227 Loss (gain) on sale of property and equipment............................. (6) 12,322 (16,111) (16,012) (200) Equity in earnings of unconsolidated entities.............................. -- -- (56,180) (29,151) (39,901) (Increase) decrease in: Accounts receivable, net.............. (159,743) (202,933) (973,666) (528,312) 100,382 Merchandise inventory................. (85,606) (77,370) (1,851,822) (3,888,216) (1,402,534) Receivables from affiliates........... (309,329) 264,548 (1,605,917) 331,931 246,334 Other assets.......................... 155,183 (57,277) 53,699 (289,829) (35,323) Increase (decrease) in: Accounts payable and accrued expenses............................ 403,979 1,183,626 (200,826) (161,944) 277,573 Payables to affiliates................ (1,702,022) (856,002) 13,669,319 14,410,361 (8,100,000) Accrued income taxes.................. 16,681 (276,145) (8,644) (8,644) 29,400 Deferred compensation and other noncurrent liabilities.............. 68,396 127,806 66,399 35,071 63,876 ----------- ----------- ----------- ----------- ----------- Net cash provided (used) by operating activities.............................. 580,850 1,680,586 10,491,931 10,460,595 (8,189,831) ----------- ----------- ----------- ----------- ----------- Cash flows from investing activities: Purchases of property and equipment..... (207,961) (1,557,758) (2,391,313) (2,296,774) (43,847) Proceeds from sale of property and equipment............................. 18,448 28,861 18,809 18,946 200 Purchase of investments................. -- -- (8,054,027) (8,054,027) -- Other changes in investments............ -- -- -- -- 11,746 ----------- ----------- ----------- ----------- ----------- Net cash used by investing activities..... (189,513) (1,528,897) (10,426,531) (10,331,855) (31,901) ----------- ----------- ----------- ----------- ----------- Cash flows from financing activities: Proceeds from issuance of long-term debt................................ -- -- -- -- 8,100,000 Principal payments on long-term debt................................ -- -- -- -- (289,286) Dividends paid........................ (125,625) (125,625) (125,625) (125,625) (83,750) ----------- ----------- ----------- ----------- ----------- Net cash provided (used) by financing activities.............................. (125,625) (125,625) (125,625) (125,625) 7,726,964 ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents............................. 265,712 26,064 (60,225) 3,115 (494,768) Cash and cash equivalents at beginning of period.................................. 536,045 801,757 827,821 827,821 767,596 ----------- ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period.................................. $ 801,757 $ 827,821 $ 767,596 $ 830,936 $ 272,828 =========== =========== =========== =========== =========== Supplemental disclosures of cash flow information: Interest paid......................... $ 593,245 $ 854,643 $ 1,433,242 $ 968,917 $ 1,224,072 Income taxes paid..................... 1,081,924 911,800 314,100 314,100 68,000 </TABLE> See accompanying notes to financial statements. F-6 <PAGE> 2117 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. NOTES TO FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES COMPANY OPERATIONS Belk Department Store of Greenville, N.C., Inc. (the Company) operates retail department stores in North Carolina. FISCAL YEAR Starting in fiscal year 1996, the Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1996 and 1997 ended on February 3, 1996 and February 1, 1997 and included 368 and 365 days, respectively. Fiscal year 1995 ended on Tuesday, January 31, 1995 and included 364 days. UNAUDITED FINANCIAL STATEMENTS The financial statements as of February 3, 1996 and for the years ended January 31, 1995 and February 3, 1996, and as of and for the periods ended November 2, 1996 and November 1, 1997 are unaudited. In the opinion of management, the accompanying financial statements reflect all adjustments necessary to present fairly the Company's financial position and results of operations and cash flows. The combined financial statements for the interim periods ended November 2, 1996 and November 1, 1997 are not necessarily indicative of the results of operations for a full fiscal year. REVENUES Revenues include sales from retail operations and leased departments, net of returns. COST OF GOODS SOLD Cost of goods sold includes occupancy and buying expenses. Occupancy expenses include rent, utilities and real estate taxes. Buying expenses include the payroll and travel expenses associated with the buying function. MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market as determined by the retail inventory method. FINANCE CHARGES Selling, general and administrative expenses in the combined statements of operations are reduced by finance charge revenue arising from customer accounts receivable. Finance charge revenue amounted to approximately $769,000, $748,000 and $867,000 in fiscal years 1995, 1996 and 1997, respectively. PROPERTY AND EQUIPMENT, NET Property and equipment owned by the Company are stated at cost less accumulated depreciation. Depreciation is provided utilizing straight-line and various accelerated methods over the estimated asset lives. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement bases and the respective tax bases of the assets and liabilities and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to F-7 <PAGE> 2118 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. PRE-OPENING COSTS Store pre-opening costs are expensed as incurred. CASH EQUIVALENTS Cash equivalents include liquid investments with an original maturity of 90 days or less. ADVERTISING Advertising costs are expensed as incurred and amounted to $730,168, $937,289 and $1,065,140 in fiscal years 1995, 1996 and 1997, respectively. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) ACCOUNTS RECEIVABLE, NET Customer receivables arise primarily under open-end revolving credit accounts used to finance purchases of merchandise from the Company. These accounts have various billing and payment structures, including varying minimum payment levels and finance charge rates. Installments of deferred payment accounts receivable maturing after one year are included in current assets in accordance with industry practice. The Company provides an allowance for doubtful accounts which is determined based on a number of factors, including the risk characteristics of the portfolio, historical charge-off patterns and management judgment. Accounts receivable, net consists of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Customer receivables............................... $5,799,230 $6,811,184 $6,764,105 Other.............................................. 34,674 30,537 19,132 Less allowance for doubtful accounts............... (82,891) (117,042) (158,940) ---------- ---------- ---------- Accounts receivable, net........................... $5,751,013 $6,724,679 $6,624,297 ========== ========== ========== </TABLE> F-8 <PAGE> 2119 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Changes in allowance for doubtful accounts are as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Balance, beginning of period...................... $ 63,818 $ 67,636 $ 82,891 $ 82,891 $ 117,042 Charged to expense............ 93,223 105,002 193,993 106,412 206,852 Net uncollectible balances written off................. (89,405) (89,747) (159,842) (106,412) (164,954) -------- -------- --------- --------- --------- Balance, end of period........ $ 67,636 $ 82,891 $ 117,042 $ 82,891 $ 158,940 ======== ======== ========= ========= ========= </TABLE> (3) INVESTMENT IN UNCONSOLIDATED ENTITY The Company's investment in the following unconsolidated entity includes the unamortized excess of the Company's investment over its equity in the investments' net assets. The excess was $234,359 at February 1, 1997, and is being amortized on a straight-line basis over a period of 15 years. The investment in unconsolidated entities and percentage owned is: <TABLE> <S> <C> Hudson-Belk Co. of Fuquay-Varina, N.C., Inc................. 23.9% </TABLE> Condensed financial information of the unconsolidated entity is as follows: <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Current assets..................................... $1,860,092 $2,009,774 $2,350,848 Noncurrent assets.................................. 733,977 671,304 645,037 Current liabilities................................ 249,611 193,482 263,472 Noncurrent liabilities............................. 61,591 54,307 47,699 Shareholders' equity............................... 2,282,867 2,433,289 2,684,714 Revenues........................................... 4,293,565 4,153,975 4,326,878 Net income......................................... 220,903 199,591 300,595 </TABLE> (4) INVESTMENTS Investments in equity securities of closely held companies and securities that do not have readily determinable fair values are recorded at original cost when ownership is less than 20%. Any such investments owned 20% or more but not greater than 50% are accounted for on the equity method. Investments that were previously accounted for on the cost method may become qualified for use of the equity method. The carrying amount of those investments are adjusted to reflect the investor's share of the income, losses and dividends received from the investees. F-9 <PAGE> 2120 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (5) PROPERTY AND EQUIPMENT, NET Details of property and equipment, net are as follows: <TABLE> <CAPTION> ESTIMATED FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, LIVES 1996 1997 1997 --------- ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> Land................................ N/A $ 274,457 $ 274,457 $ 274,457 Buildings........................... 30-50 9,211,738 9,212,466 10,641,906 Furniture, fixtures and equipment... 5-7 7,570,531 8,100,047 9,554,806 Construction in progress............ N/A 1,107,642 2,845,419 2,010 ------------ ------------ ------------ 18,164,368 20,432,389 20,473,179 Less accumulated depreciation....... (10,608,940) (11,559,126) (12,340,296) ------------ ------------ ------------ Property and equipment, net......... $ 7,555,428 $ 8,873,263 $ 8,132,883 ============ ============ ============ </TABLE> (6) ACCRUED EXPENSES Accrued expenses are comprised of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Salaries, wages and employee benefits.............. $397,899 $256,735 $142,954 Interest........................................... 6,376 81,629 114,273 Taxes, other than income........................... 93,659 68,034 196,457 Rent............................................... 17,730 16,341 9,236 Other.............................................. 178,607 135,677 394,094 -------- -------- -------- $694,271 $558,416 $857,014 ======== ======== ======== </TABLE> (7) BORROWINGS Long term debt consists of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Unsecured term loan agreement payable in installments through July 2004; interest at LIBOR (5.65% at November 1, 1997) plus from 80 to 100 basis points............................. $-- $-- $ 7,810,714 Less current installments......................... -- -- (1,157,144) --- --- ----------- Long-term debt excluding current installments..... $-- $-- $ 6,653,570 === === =========== </TABLE> The Company's term loan agreement contains, among other provisions and covenants, restrictions relating to the creation of additional funded debt, except as permitted, and the disposal, expansion or purchase of fixed assets, except as permitted. Under the most restrictive of these provisions, the Company must maintain, at the end of any fiscal year, a consolidated tangible net worth in excess of a base amount increasing annually, as defined in the credit agreement. In addition, at the end of the second quarter and the fiscal year, the Company must maintain a leverage ratio of less than or equal to .50 to 1.00 and, commencing with the fiscal year ending in 1998, a minimum fixed charge coverage ratio of 1.10 to 1.00. The Company was in compliance with the loan covenants as of November 1, 1997. F-10 <PAGE> 2121 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The covenants also include a restriction on dividend payments. The Company can only declare dividends from operating profits from the preceding fiscal year. At February 1, 1997, the Company had $19,066,971 of retained earnings unavailable for dividend payments. The Company has unsecured line of credit agreements totaling $4,500,000 with banks at interest rates quoted by the banks (which historically have been approximately 80 points above LIBOR.) There were no amounts outstanding at February 3, 1996, February 1, 1997 and November 1, 1997. (8) LEASE COMMITMENTS The Company leases certain stores, warehouse facilities and equipment under operating leases. The majority of those leases will expire over the next 10 years. The leases usually contain renewal options and provide for payment by the leasee of real estate taxes and other expenses, and in certain instances, increased rentals based on percentages of sales. <TABLE> <CAPTION> FISCAL YEAR OPERATING - ----------- ---------- <S> <C> 1998........................................................ $ 625,235 1999........................................................ 621,035 2000........................................................ 591,635 2001........................................................ 591,635 2002........................................................ 591,635 After 2002.................................................. 2,482,353 ---------- Total....................................................... $5,503,528 ========== </TABLE> Rental expense for all operating leases consists of the following: <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Buildings: Minimum rentals.................................. $454,595 $534,309 $668,147 Contingent rentals............................... 14,110 16,730 (3,941) Equipment.......................................... 3,574 5,764 7,134 -------- -------- -------- Total rental expense............................. $472,279 $556,803 $671,340 ======== ======== ======== </TABLE> Contingent rentals are determined on the basis of a percentage of sales in excess of stipulated minimums for certain store facilities. F-11 <PAGE> 2122 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (9) INCOME TAXES Federal and state income tax expense (benefit) is as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Current: Federal...................... $ 880,507 $364,227 $173,211 $(64,755) $(51,905) State........................ 219,966 88,679 45,378 (17,282) (13,830) ---------- -------- -------- -------- -------- 1,100,473 452,906 218,589 (82,037) (65,735) Deferred: Federal...................... (161,188) 795 (26,995) (10,073) (11,648) State........................ (40,279) 634 (6,670) (2,890) (2,617) ---------- -------- -------- -------- -------- (201,467) 1,429 (33,665) (12,963) (14,265) ---------- -------- -------- -------- -------- Income taxes................... $ 899,006 $454,335 $184,924 $(95,000) $(80,000) ========== ======== ======== ======== ======== </TABLE> A reconciliation between income taxes computed using the effective income tax rate and the federal statutory income tax rate of 34% is as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Income tax at the statutory federal rate............ $831,733 $425,262 $172,485 State income taxes, net of federal income tax benefit........................................... 118,593 58,947 25,547 Other............................................... (51,320) (29,874) (13,108) -------- -------- -------- Income taxes........................................ $899,006 $454,335 $184,924 ======== ======== ======== </TABLE> Deferred taxes based upon differences between the financial statement and tax bases of assets and liabilities and available tax carryforwards consist of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- (UNAUDITED) <S> <C> <C> Deferred tax assets: Benefit plan costs........................................ $243,719 $271,995 Allowance for doubtful accounts........................... 32,423 45,781 Inventory capitalization.................................. 30,219 36,733 Other..................................................... 6,258 -- -------- -------- Gross deferred tax assets................................... 312,619 354,509 Deferred tax liabilities: Prepaid pension costs..................................... 62,018 52,441 Property and equipment.................................... 53,751 40,330 Other..................................................... -- 31,223 -------- -------- Gross deferred tax liabilities.............................. 115,769 123,994 -------- -------- Net deferred tax assets..................................... $196,850 $230,515 ======== ======== </TABLE> In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred F-12 <PAGE> 2123 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) tax assets is dependent upon the temporary differences becoming deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future income, and tax planning strategies in making this assessment. (10) BENEFIT PLANS The Company participates in the Belk Pension Plan, a defined benefit multi-employer plan that covers substantially all of the employees of the Belk companies. Pension expense allocated to the Company was $23,198, $43,373 and $24,488 for fiscal years 1995, 1996 and 1997, respectively. Because the Belk Pension Plan is a multi-employer plan, allocation of plan assets to the Company is not practical. The Company also participates in the Belk Employee's Group Medical Plan that provides medical benefits to substantially all employees of the Belk companies. This Plan is "self-funded" for medical benefits through a 501(c) (9) Trust. The Company participates in the Group Life Insurance Plan that provides life insurance to its employees, and is fully insured through a contract issued by an insurance company. Contributions by the Company under the Belk Employees' Group Medical Plan and the Group Life Insurance Plan amounted to approximately $275,000, $250,000 and $282,000 in fiscal years 1995, 1996 and 1997, respectively. The Company participates in the Belk Profit Sharing Plan, a contributory, defined contribution multi-employer plan, that provides benefits for substantially all employees of the Belk companies. The cost of the plan generally represents 10% of profits, as defined, and amounted to $294,843, $147,759 and $61,668 in fiscal years 1995, 1996 and 1997, respectively. The Company participates in the Supplemental Executive Retirement Plan (SERP), a non-qualified defined benefit retirement plan that provides retirement and death benefits to certain qualified executives of the Company. Total SERP costs charged to operations were $12,740, $26,153 and $6,308 in fiscal years 1995, 1996 and 1997, respectively. The effective discount rate used in determining the net periodic SERP cost is 8.5% for fiscal years 1995 and 1996 and 7.25% for fiscal year 1997. Actuarial gains and losses are amortized over the average remaining service lives of the participants. Certain eligible employees also participate in a non-qualified Deferred Compensation Plan (DCP). Participants in the plan have elected to defer a portion of their regular compensation subject to certain limitations prescribed by the DCP. The Company is required to pay interest on the employees' deferred compensation at various rates between 9% and 15%. Total interest expense related to this plan and charged to operations was $38,314, $41,640 and $47,532 in fiscal years 1995, 1996 and 1997, respectively. The Company provides postretirement benefits to certain retired employees in the form of medical and life insurance premiums. The Company recorded approximately $29,000, $29,000 and $35,000 as selling, general and administrative expense in fiscal years 1995, 1996 and 1997, respectively. (11) RELATED PARTY TRANSACTIONS The Belk Center, Inc. services the Company's customer accounts receivable. The Company paid The Belk Center, Inc. approximately $372,000, $430,000 and $487,000 during fiscal years 1995, 1996 and 1997, respectively, for these services. Various other selling, general, administrative and transaction processing services are provided by Belk Store Services, Inc. (BSS). The Company paid BSS approximately $767,000, $762,000 and $750,000 during fiscal years 1995, 1996 and 1997, respectively, for these services, not including the transaction processing services. The Company paid approximately $446,000, $543,000 and $614,000 during fiscal years 1995, 1996 and 1997, respectively for transaction processing fees. F-13 <PAGE> 2124 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Company has line of credit agreements with an affiliated company. At February 1, 1997, the Company had outstanding borrowings of $8,100,000 under these agreements, which are included in payables to affiliates in the accompanying balance sheets. The interest rate at February 1, 1997 was 6.28%. The Company may participate in operational, investing and financing activities with other Belk companies. (12) FAIR VALUE OF FINANCIAL INSTRUMENTS For financial instruments which are short-term in nature, such as cash and cash equivalents, accounts receivable, receivables from affiliates, accounts payable, payables to affiliates and accrued expenses, carrying value approximates fair value. The carrying values of the Company's variable rate long-term debt are reasonable estimates of fair value. F-14 <PAGE> 2125 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2126 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2127 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2128 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2129 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2130 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2131 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ---------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................. $41,243,896 $378,565 $1,609,761 $2,680,540 $20,283,036 Adjustments to eliminate less than wholly-owned subsidiaries................. -- -- -- -- -- Less: Leased sales.......................... 45,754 -- -- -- -- ----------- -------- ---------- ---------- ----------- Adjusted Shareholders' Statement............ $41,198,142 378,565 1,609,761 2,680,540 20,283,036 =========== -------- ---------- ---------- ----------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............. (10,238) (16,111) (16,111) Gain/loss on sale of securities........... -- -- -- Impairment loss........................... -- -- -- Equity in earnings of unconsolidated subsidiaries............................ (56,180) (88,406) (88,406) Gain/loss on discontinued operations...... -- -- -- Adjustment to tax expense................. -- -- -- -------- ---------- ---------- Total non-operating items................... (66,418) (104,517) (104,517) -------- ---------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities..................... (118) (185) (185) -- Adjustment for ownership in other Belk entities................................ -- -- -- (8,126,447) -------- ---------- ---------- ----------- Per Model................................... $312,029 $1,505,059 $2,575,838 $12,156,589 ======== ========== ========== =========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................. $ (767,596) Negative cash balances reclassified to accounts payable...................... -- Receivables from affiliates, net........ -- Loans receivable from affiliates, net... -- Liabilities Notes payable........................... -- Current installments of long-term debt.................................. -- Current portion of obligations under capital leases........................ -- Payables to affiliates, net............. 6,135,198 Long-term debt, excluding current installments.......................... -- Obligations under capital leases, excluding current portion............. -- Loans payable to affiliates, net........ 5,731,549 ----------- Net debt (cash)............................. 11,099,151 Adjustments to eliminate less than wholly-owned subsidiaries................. -- ----------- Per Model................................... $11,099,151 =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2132 SUPPLEMENT NO. 50 <PAGE> 2133 BELK DEPARTMENT STORE OF GREENVILLE, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 50 <PAGE> 2134 BELK-SIMPSON COMPANY OF HENDERSONVILLE, N.C., INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Simpson Company of Hendersonville, N.C., Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 190.3282 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 400,451 shares of New Belk Class A Common Stock which will represent approximately 0.6674% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2135 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2136 BELK-SIMPSON COMPANY OF HENDERSONVILLE, N.C., INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-SIMPSON COMPANY OF HENDERSONVILLE, N.C., INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Simpson Company of Hendersonville, N.C., Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 190.3282 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2137 BELK-SIMPSON COMPANY OF HENDERSONVILLE, N.C., INCORPORATED SUPPLEMENT NO. 51 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 51 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-SIMPSON COMPANY OF HENDERSONVILLE, N.C., INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/ PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 2138 THE COMPANY The Company was incorporated as a North Carolina corporation in 1939. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 190.3282 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2139 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to share the risk associated with the uncertain prospects for the Company's store in its current location. The store is located in a market that is close to a substantially larger market with larger Belk stores and other competitors. The prospects for growth of the Company's store may be limited because of the size of its market and its close proximity to such competition. The Merger would allow the Company to share with New Belk the risk associated with the Company's current market and participate in the growth of other Belk stores located in markets with better growth prospects. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 3,000 shares of Common Stock. 3 <PAGE> 2140 Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holders, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the 4 <PAGE> 2141 holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate 5 <PAGE> 2142 number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. 6 <PAGE> 2143 Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of 7 <PAGE> 2144 incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 2145 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official 9 <PAGE> 2146 capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which 10 <PAGE> 2147 results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a 11 <PAGE> 2148 preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholder's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. 12 <PAGE> 2149 After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. 13 <PAGE> 2150 If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2151 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales................... $8,919,781 $8,919,781 0.6 $(1,327,184) $6,679,052 EBITDA...................... 1,065,937 1,065,936 7 (1,327,184) 8,788,736 EBIT........................ 805,725 805,725 10 (1,327,184) 9,384,434 Net Income.................. 510,986 510,986 15 -- 7,664,790 Book Equity................. 4,656,017 4,655,710 1 -- 4,655,710 </TABLE> 15 <PAGE> 2152 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ---------- Total $ N/A ========== Relative Operating Value of Company $9,384,434 Relative Operating Value of Other Companies Owned by Company + -- ---------- Total Relative Value of Company = $9,384,434 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 17.2656% X $9,384,434 = $1,620,279 Belk Enterprises, Inc. .3125 X 93,843 = 29,326 Belk Brothers of Monroe, North Carolina, Incorporated .2344 X 93,844 = 21,997 ---------- Total $1,671,602 ========== Total Relative Value of Company $9,384,434 Total Relative Value of Company Owned by Other Belk Companies - 1,671,202 ---------- Net Relative Value of Company = $7,712,831 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 7,712,831 / $1,155,623,145 = .6674% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.6674% X 60,000,007) / 2,104 = 190.3282 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 2153 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 199.60 Book value per share(2)................................... 1,818.76 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 180.66 Book value per share...................................... 2,409.92 </TABLE> - --------------- (1) Based on 2,560 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 2,560 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 2154 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED ----------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales............................................... $ 9,219 $ 8,909 $ 8,920 Net income.............................................. 428 327 511 Per common share Net income (loss)(1).................................. 167.03 127.68 199.60 Dividends............................................. 25.00 40.00 40.00 Book value(2)......................................... 1,533.01 1,632.40 1,818.76 Total assets............................................ 4,907 4,837 5,593 Shareholders' equity.................................... 3,925 4,179 4,656 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED -------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $6,192 $6,113 Income from operations...................................... 521 592 </TABLE> - --------------- (1) Based on 2,560 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 2,560 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 2155 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Blue Ridge Mall in Hendersonville, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Kuhne/Greiner group office in Greenville, South Carolina. The Company also owns approximately $400,000 in marketable securities. Facilities. The Company owns the store property and building, which contains approximately 76,000 square feet of floor area, together with an adjacent parking area. The Company believes the facility is adequate for its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, K-Mart, and Penney. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 2156 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)........................................ 813 31.8% Thomas M. Belk, Jr. (Executive Officer) (b)(e)(f)(g)........ 510 19.9% H. W. McKay Belk (Executive Officer) (b)(e)(f)(g)........... 513 20.0% John R. Belk (Director and Executive Officer) (b)(c)(e)(f)(i)........................................... 537 21.0% Sarah Belk Gambrell (Director) (c)(d)....................... 774 30.2% John A. Kuhne (Director and Executive Officer).............. 0 * R. E. Greiner (Director and Executive Officer).............. 0 * Kate Simpson (j)............................................ 800 31.3% Lucy S. Kuhne (j)........................................... 800 31.3% Claire E Russo (j).......................................... 800 31.3% Welch Bostick, Jr. (Executive Officer)...................... 0 * Kate McArver Simpson, Lucy Caroline Bowden Simpson Kuhne and Hazel Clair M. Efird as Personal Representatives of the Estate of William Henry Belk Simpson, Deceased............ 800 31.3% J.V. Properties............................................. 442 17.3% All Directors and Executive Officers as a group (8 persons).................................................. 1,658 64.8% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; W. B. Beery, III -- 1919 Brookhaven Road, Wilmington, N.C. 28403; John A. Kuhne, Lucy S. Kuhne, Claire E. Russo, Kate Simpson, R. E. Greiner and Welch Bostick, Jr. -- 14 S. Main Street, Greenville, S.C. 29601; Kate McCarver Simpson, Lucy Caroline Bowden Simpson Kuhne and Hazel Claire M. Efird as Personal Representatives of the Estate of William Henry Belk Simpson, Deceased -- P.O. Box 17433, Greenville, S.C. 29606; J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 16 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 11 shares held by Milburn Investment Company, of which the Estate of Thomas M. Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas M. Belk, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Includes 80 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for 20 <PAGE> 2157 Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 26 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (e) Includes 6 shares held by Belk Brothers of Monroe, North Carolina, Incorporated and 8 shares held by Belk Enterprises, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such Corporation, under authority given by the directors of each such Corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (f) Includes 442 shares of J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (g) Includes 61 shares held by Thomas M. Belk, Jr. as custodian for his minor children and 8 shares held as custodian for the minor children of his brother, H. W. McKay Belk. (h) Includes 46 shares held by H. W. McKay Belk as custodian for his minor children. (i) Includes 70 shares held by John R. Belk as custodian for his minor children. (j) Includes 800 shares held by the Estate of William Henry Belk Simpson. Voting and investment power is shared by the Personal Representatives, who are Kate Simpson, Lucy Kuhne and Claire Russo. 21 <PAGE> 2158 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 2159 BELK-SIMPSON COMPANY OF HENDERSONVILLE, N.C., INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 112,444 $ 129,391 Accounts receivable, net.................................. 1,170,739 1,334,573 Merchandise inventory..................................... 1,645,068 1,709,460 Receivable from affiliates, net........................... 535,824 1,197,793 Deferred income taxes..................................... 24,434 21,479 Other..................................................... 69,455 66,394 ---------- ---------- Total current assets........................................ 3,557,964 4,459,090 Investments................................................. 299,695 412,178 Property, plant and equipment, net.......................... 935,282 683,040 Other noncurrent assets..................................... 44,005 38,965 ---------- ---------- $4,836,946 $5,593,273 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 445,064 $ 578,923 Accrued income taxes...................................... 11,416 131,401 ---------- ---------- Total current liabilities................................... 456,480 710,324 Deferred income taxes....................................... 160,177 180,167 Other noncurrent liabilities................................ 41,344 46,765 ---------- ---------- Total liabilities........................................... 658,001 937,256 Shareholders' equity: Common stock.............................................. 256,000 256,000 Net unrealized gain (loss) on investments, net of income taxes.................................................. 171,289 239,775 Retained earnings......................................... 3,751,656 4,160,242 ---------- ---------- Total shareholders' equity.................................. 4,178,945 4,656,017 ---------- ---------- $4,836,946 $5,593,273 ========== ========== </TABLE> F-2 <PAGE> 2160 BELK-SIMPSON COMPANY OF HENDERSONVILLE, N.C., INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales.......................................... $9,388,106 $9,220,612 $9,286,976 Less: Leased Sales......................................... 169,308 311,687 367,195 ---------- ---------- ---------- Net sales.................................................. 9,218,798 8,908,925 8,919,781 Operating costs and expenses............................... 8,465,797 8,313,521 8,119,101 ---------- ---------- ---------- Income from operations..................................... 753,001 595,404 800,680 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (23,248) 7,169 28,337 Dividend income.......................................... 4,042 4,599 5,157 Gain (loss) on disposal of property, plant and equipment............................................. 1,500 -- -- Miscellaneous, net....................................... (34,682) (69,954) (112) ---------- ---------- ---------- Total other expense, net................................... (52,388) (58,186) 33,382 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 700,613 537,218 834,062 Income tax expense (benefit)............................... 273,007 210,361 323,076 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 427,606 326,857 510,986 ---------- ---------- ---------- Net earnings............................................... 427,606 326,857 510,986 Retained earnings at beginning of period................... 3,163,593 3,527,199 3,751,656 Dividends paid............................................. (64,000) (102,400) (102,400) ---------- ---------- ---------- Retained earnings at end of period......................... $3,527,199 $3,751,656 $4,160,242 ========== ========== ========== </TABLE> F-3 <PAGE> 2161 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 2162 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 2163 ANNEX A DISSENTERS' RIGHTS OF APPRAISER CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; A-1 <PAGE> 2164 (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2165 SEC.SEC. 55-13-04 TO 55-13-19. Reserved for future codification purposes. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2166 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2167 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2168 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2169 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 8,919,781 $510,986 $805,725 $1,065,937 $4,656,017 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- ---------- ---------- Adjusted Shareholders' Statement.............. $ 8,919,781 510,986 805,725 1,065,937 4,656,017 =========== -------- -------- ---------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... -- -- -- Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- ---------- Total non-operating items..................... -- -- -- -------- -------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. -- -- -- Adjustment for ownership in other Belk entities.................................. (307) -------- -------- ---------- ---------- Per Model..................................... $510,986 $805,725 $1,065,937 $4,655,710 ======== ======== ========== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (129,391) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (1,197,793) Loans receivable from affiliates, net..... -- Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (1,327,184) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $(1,327,184) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2170 SUPPLEMENT NO. 51 <PAGE> 2171 BELK-SIMPSON COMPANY OF HENDERSONVILLE, N.C., INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 51 <PAGE> 2172 BELK DEPARTMENT STORE OF HICKORY, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Department Store of Hickory, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 177.3438 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 966,113 shares of New Belk Class A Common Stock which will represent approximately 1.6102% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2173 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2174 BELK DEPARTMENT STORE OF HICKORY, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK DEPARTMENT STORE OF HICKORY, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Department Store of Hickory, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 177.3438 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2175 BELK DEPARTMENT STORE OF HICKORY, N.C., INC. SUPPLEMENT NO. 52 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 52 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK DEPARTMENT STORE OF HICKORY, N.C., INC.(THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 2176 THE COMPANY The Company was incorporated as a North Carolina corporation in 1927. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 177.3438 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2177 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 9,160 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 2178 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 2179 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them 5 <PAGE> 2180 adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without 6 <PAGE> 2181 prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more 7 <PAGE> 2182 than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 2183 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the Corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official 9 <PAGE> 2184 capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which 10 <PAGE> 2185 results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a 11 <PAGE> 2186 preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and the shareholder gives the corporation written notice of the demand at least five business days before the date (iv) on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. 12 <PAGE> 2187 After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. 13 <PAGE> 2188 If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period")multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2189 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales................... $26,613,169 $26,613,169 0.6 $377,832 $15,590,069 EBITDA...................... 3,066,411 3,068,994 7 377,832 21,105,126 EBIT........................ 2,506,398 2,508,981 10 377,832 24,711,978 Net Income.................. 1,450,564 1,452,157 15 -- 21,782,355 Book Equity................. 13,595,197 11,943,569 1 -- 11,943,569 </TABLE> 15 <PAGE> 2190 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- ------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Tags Stores, LLC 10.0130% X $15,118,749 = $ 1,513,840 ----------- Total $ 1,513,840 =========== Relative Operating Value of Company $24,711,978 Relative Operating Value of Other Companies Owned by Company + 1,513,840 ----------- Total Relative Value of Company = $26,225,818 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk's Department Store of Asheville, North Carolina, Incorporated 1.5499% X $26,225,818 = $ 406,474 Belk Brothers Company 22.8608% X 26,225,818 = 5,995,431 Belk Enterprises, Inc. 3.7510% X 26,225,818 = 983,730 Matthews-Belk Company .8864 X 26,225,818 = 232,466 ----------- Total $ 7,618,101 =========== Total Relative Value of Company $26,225,818 Total Relative Value of Company Owned by Other Belk Companies - 7,618,101 ----------- Net Relative Value of Company = $18,607,717 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $18,607,717 / $1,155,623,145 = 1.6102% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (1.6102% X 60,000,007) / 5,447.6875 = 177.3438 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 2191 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $188.92 Book value per share(2)................................... 1,770.67 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 168.33 Book value per share...................................... 2,245.51 </TABLE> - --------------- (1) Based on 7,678 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 7,678 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 2192 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 25,896 $ 28,226 $ 26,613 Net income.................................................. 1,317 1,152 1,451 Per common share Net income (loss)(1)...................................... 171.51 150.03 188.92 Dividends................................................. 12.00 17.00 22.00 Book value(2)............................................. 1,470.71 1,603.74 1,770.67 Total assets................................................ 15,766 15,707 16,823 Shareholders' Equity........................................ 11,292 12,314 13,595 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $16,840 $17,457 Income from operations...................................... 1,321 1,547 </TABLE> - --------------- (1) Based on 7,678 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 7,678 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 2193 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. The Company opened the Hickory Outlet Center in October of fiscal year 1995. The outlet was then contributed to TAGS Stores, LLC in exchange for a partnership interest in June of fiscal year 1997, resulting in a decrease of revenues for that year. Fiscal year 1997 comparable store sales decreased due to poor sales performance at the Morganton store. BUSINESS OF THE COMPANY General. The Company operates two retail department stores in Valley Hills Mall in Hickory, North Carolina and in downtown Morganton, North Carolina. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The stores are managed out of the Matthews group office in Gastonia, North Carolina. Facilities. The Company owns both the store property and building at Hickory, which contains approximately 160,000 square feet of floor area, together with an adjacent parking area. The Company also owns its downtown store in Morganton, which contains approximately 27,000 square feet of floor area. The Company believes the Hickory facilities are adequate for its current needs but the Morganton facilities are not; consequently, the Board of Directors has approved a relocation of the downtown Morganton store to a new shopping center site, which is scheduled for the first quarter of 1999. Competition. Specific competitors in the Company's market include Sears, Penney, Goody's, K-Mart and Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 2194 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)........................................ 3,229.375 42.1% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(e)(f)(g).............................................. 2,409.375 31.4% H. W. McKay Belk (Director and Executive Officer) (b)(e)(f)(h).............................................. 2,407.375 31.4% John R. Belk (Director and Executive Officer) (b)(e)(f)(i).............................................. 2,403.375 31.3% Sarah Belk Gambrell (Director) (d).......................... 1,065.0000 13.9% David Belk Cannon (Director) (k)............................ 425.0000 5.5% James K. Glenn, Jr. (Director) (j).......................... 312.0000 4.1% B. Frank Matthews, II (Director) (n)........................ 76.0625 * Eugene Robinson Matthews (Director and Executive Officer)... 0 * J.V. Properties............................................. 1,755.25 22.9% NationsBank, N.A............................................ 499 6.5% All Directors and Executive Officers as a group (8 persons).................................................. 5,173.625 67.4% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P. O. Box 2736, Winston-Salem, N.C. 27102; B. Frank Matthews, II and Eugene Robinson Matthews -- 2240 Remount Road, Gastonia, N.C. 28054; J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500 and NationsBank, N.A. -- Sara McDonald, NationsBank, N.A., Charlotte, N.C. 28255. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 277 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 45 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Includes 18.0625 Mary Claudia Belk Irrevocable Trust dated 1/4/94. Claudia W. Belk, Trustee, is John M. Belk's wife. (d) Includes 328 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. 20 <PAGE> 2195 (e) Includes 119 shares held by Belk's Department Store of Asheville, North Carolina, Incorporated, 288 shared held by Belk Enterprises, Inc. and 68.0625 shares held by Matthews-Belk Company which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporate at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (f) Includes 1755.25 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (g) Includes 20 shares held by Thomas M. Belk, Jr. as custodian for his minor children. (h) Includes 15 shares held by H. W. McKay Belk as custodian for his minor children. (i) Includes 15 shares held by John R. Belk as custodian for his minor children. (j) Includes 307 shares held by James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox and 5 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (k) Includes 139 shares held by Residuary Trust U/W Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (l) Includes 45 shares held by NationsBank as Trustee for the Daisy Belk Doughton Lange Revocable Trust dtd 3/25/97, 3 shares held by NationsBank as Trustee for the Robert L. Doughton II Revocable Trust dtd 3/25/97, 163 shares held by Sara Dew Misner and North Carolina National Bank, Co- trustees for Daisy Doughton Lange U/A dated November 5, 1965, and 106 shares held by N.C. Nat'l Bank, Trustees U/A 7/9/65 -- Sadie Belk Cummings, Grantor. NationsBank has sole voting and investing power with respect to such shares. (m) Includes 182 shares held by Daisy Doughton Lange and North Carolina National Bank, Trustees for Robert L. Doughton, II under Agreement dated July 21, 1965. The named Trustees have voting and investment power with respect to such shares. (n) Includes 19.0625 shares held by his spouse, Betty Choate Matthews. 21 <PAGE> 2196 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 2197 BELK DEPARTMENT STORE OF HICKORY, N.C., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 202,236 $ 235,933 Accounts receivable, net.................................. 4,392,413 4,663,512 Merchandise inventory..................................... 5,306,423 4,965,324 Receivable from affiliates, net........................... -- 385,234 Deferred income taxes..................................... 46,388 -- Other..................................................... 227,408 206,847 ----------- ----------- Total current assets........................................ 10,174,868 10,456,850 Investments................................................. 1,588 1,651,628 Property, plant and equipment, net.......................... 5,401,782 4,599,709 Other noncurrent assets..................................... 128,735 114,697 ----------- ----------- $15,706,973 $16,822,884 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 1,452,770 $ 1,554,757 Payables to affiliates, net............................... 125,099 -- Deferred income taxes..................................... -- 60,024 Accrued income taxes...................................... 101,270 208,714 ----------- ----------- Total current liabilities................................... 1,679,139 1,823,495 Deferred income taxes....................................... 291,428 148,020 Loans payable to affiliates, net............................ 1,199,000 999,000 Other noncurrent liabilities................................ 223,857 257,172 ----------- ----------- Total liabilities........................................... 3,393,424 3,227,687 Shareholders' equity: Common stock.............................................. 767,800 767,800 Retained earnings......................................... 11,545,749 12,827,397 ----------- ----------- Total shareholders' equity.................................. 12,313,549 13,595,197 ----------- ----------- $15,706,973 $16,822,884 =========== =========== </TABLE> F-2 <PAGE> 2198 BELK DEPARTMENT STORE OF HICKORY, N.C., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $26,385,972 $28,839,367 $27,249,479 Less: Leased Sales...................................... 490,135 613,431 636,310 ----------- ----------- ----------- Net sales............................................... 25,895,837 28,225,936 26,613,169 Operating costs and expenses............................ 23,484,631 26,067,612 24,056,533 ----------- ----------- ----------- Income from operations.................................. 2,411,206 2,158,324 2,556,636 ----------- ----------- ----------- Other income (expense): Interest, net......................................... (223,961) (199,232) (153,800) Gain (loss) on disposal of property, plant and equipment.......................................... 242 (8,311) (2,584) Miscellaneous, net.................................... (44,725) (64,566) (47,654) ----------- ----------- ----------- Total other expense, net................................ (268,444) (272,109) (204,038) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 2,142,762 1,886,215 2,352,598 Income tax expense (benefit)............................ 825,893 734,284 902,034 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 1,316,869 1,151,931 1,450,564 ----------- ----------- ----------- Net earnings............................................ 1,316,869 1,151,931 1,450,564 Retained earnings at beginning of period................ 9,299,611 10,524,344 11,545,749 Dividends paid.......................................... (92,136) (130,526) (168,916) ----------- ----------- ----------- Retained earnings at end of period...................... $10,524,344 $11,545,749 $12,827,397 =========== =========== =========== </TABLE> F-3 <PAGE> 2199 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 2200 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 2201 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2202 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2203 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2204 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2205 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2206 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2207 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ---------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................. $26,613,169 $1,450,564 $2,506,398 $3,066,411 $13,595,197 Adjustments to eliminate less than wholly-owned subsidiaries................. -- -- -- -- -- ----------- ---------- ---------- --------- ----------- Adjusted Shareholders' Statement............ $26,613,169 1,450,564 2,506,398 3,066,411 13,595,197 =========== ---------- ---------- --------- ----------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............. 1,593 2,584 2,584 Gain/loss on sale of securities........... -- -- -- Impairment loss........................... -- -- -- Equity in earnings of unconsolidated subsidiaries............................ -- -- -- Gain/loss on discontinued operations...... -- -- -- Adjustment to tax expense................. -- -- -- -- ---------- ---------- ---------- Total non-operating items................... 1,593 2,584 2,584 ---------- ---------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities..................... -- -- -- Adjustment for ownership in other Belk entities................................ (1,651,628) ---------- ---------- ---------- ----------- Per Model................................... $1,452,157 $2,508,982 $3,068,995 $11,943,569 ========== ========== ========== =========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................. $ (235,934) Negative cash balances reclassified to accounts payable...................... -- Receivables from affiliates, net........ (385,234) Loans receivable from affiliates, net... -- Liabilities Notes payable........................... -- Current installments of long-term debt.................................. -- Current portion of obligations under capital leases........................ -- Payables to affiliates, net............. -- Long-term debt, excluding current installments.......................... -- Obligations under capital leases, excluding current portion............. -- Loans payable to affiliates, net........ 999,000 ----------- Net debt (cash)............................. 377,832 Adjustments to eliminate less than wholly-owned subsidiaries................. -- ----------- Per Model................................... $ 377,832 =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2208 SUPPLEMENT NO. 52 <PAGE> 2209 BELK DEPARTMENT STORE OF HICKORY, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 52 <PAGE> 2210 BELK-BECK CO. OF HIGH POINT, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Beck Co. of High Point, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 36.7718 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 220,116 shares of New Belk Class A Common Stock which will represent approximately 0.3669% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2211 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2212 BELK-BECK CO. OF HIGH POINT, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-BECK CO. OF HIGH POINT, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Beck Co. of High Point, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 36.7718 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2213 BELK-BECK CO. OF HIGH POINT, N.C., INC. SUPPLEMENT NO. 53 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 53 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-BECK CO. OF HIGH POINT, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 2214 THE COMPANY The Company was incorporated as a North Carolina corporation in 1930. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 36.7718 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2215 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise appraisal rights as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 20,568 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and 3 <PAGE> 2216 from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that 4 <PAGE> 2217 would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without 5 <PAGE> 2218 shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less 6 <PAGE> 2219 than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range 7 <PAGE> 2220 for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. 8 <PAGE> 2221 Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly 9 <PAGE> 2222 in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, 10 <PAGE> 2223 guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. 11 <PAGE> 2224 Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates 12 <PAGE> 2225 must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. 13 <PAGE> 2226 A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2227 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $14,109,719 $14,109,719 0.6 $2,810,328 $ 5,655,503 EBITDA............... 968,502 966,834 7 2,810,328 3,957,510 EBIT................. 160,018 158,350 10 2,810,328 (1,226,828) Net Income (loss).... (72,810) (74,170) 15 -- (1,112,550) Book Equity.......... 6,271,528 6,270,761 1 -- 6,270,761 </TABLE> 15 <PAGE> 2228 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ---------- Total $ N/A ========== Relative Operating Value of Company $6,270,761 Relative Operating Value of Other Companies Owned by Company + -- ---------- Total Relative Value of Company = $6,270,761 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 24.8023% X $ 6,270,761 = $1,555,293 Belk Enterprises, Inc. .4970 X 6,270,761 = 31,166 Belk-Beck Company of Burlington, North Carolina, Inc. 7.0025% X 6,270,761 = 439,110 Belk Department Store of Reidsville, N.C., Inc. .0904 X 6,270,761 = 5,669 ---------- Total $2,031,238 ========== Total Relative Value of Company $6,270,761 Total Relative Value of Company Owned by Other Belk Companies - 2,031,238 ---------- Net Relative Value of Company = $4,239,523 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $4,239,524 / $1,155,623,145 = .3669% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.3669% X 60,000,007) / 5,986 = 36.7718 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 2229 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ (8.22) Book value per share(2)................................... 708.33 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 34.90 Book value per share...................................... 465.60 </TABLE> - --------------- (1) Based on 8,854 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 8,854 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 2230 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $11,564 $13,717 $14,110 Net income (loss)........................................... 838 129 (73) Per common share Net income (loss)(1)...................................... 94.64 14.59 (8.22) Dividends................................................. 20.00 10.00 0.00 Book value(2)............................................. 731.96 726.55 708.33 Total assets................................................ 7,343 11,014 10,268 Shareholders' equity........................................ 6,481 6,433 6,272 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $9,672 $9,965 Income (loss) from operations............................... (418) (178) </TABLE> - --------------- (1) Based on 8,854 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 8,854 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 2231 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. During fiscal year 1996, the Company's only store was relocated to a new mall location increasing selling square feet by 110%. As a result, income from operations decreased due to one-time relocation expenses incurred in closing the original store and opening the new store. Other income (expense), net decreased in fiscal year 1996 as a result of a $28,000 loss on abandonment of fixed assets and an increase in interest expense due to additional debt incurred to fund the relocation of the store. Income from operations decreased from $579,063 in fiscal year 1996 to $27,000 in fiscal year 1997 due to increased depreciation and rent expense related to the relocation of the store. The impact of the increased rent was partially offset by the one-time relocation expenses incurred in fiscal year 1996. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Oak Hollow Mall in High Point, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Huffstetler group office in Greensboro, North Carolina. Facilities. The Company leases its store building, which contains approximately 132,000 square feet of floor area. The current term of the lease expires in 2015. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Dillard, Sears and Penney. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 2232 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 4,242 47.9% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(c)(d)(e).............................................. 3,414 38.6% H. W. McKay Belk (Director and Executive Officer) (b)(c)(d)(f).............................................. 3,414 38.6% John R. Belk (Director and Executive Officer) (b)(c)(d)(g).............................................. 3,403 38.4% Henderson Belk (Director)................................... 0 * Sarah Belk Gambrell......................................... 586 6.6% David Belk Cannon (Director)................................ 364 4.1% James K. Glenn, Jr. (Director) (i).......................... 906 10.2% Leroy Robinson (Director) (b)............................... 398 4.5% Katherine McKay Belk (b).................................... 503 5.7% Pete Huffstetler (Executive Officer)........................ 0 * Gordon J. Tendler (Executive Officer)....................... 0 * Darrell Murphy (Executive Officer).......................... 0 * James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox.................................................... 500 5.6% J.V. Properties............................................. 2,196 24.8% Montgomery Investment Company............................... 644 7.2% Belk-Beck Company of Burlington, North Carolina, Inc. ...... 620 7.0% SunTrust Bank, Augusta, N.A................................. 542 6.1% Joan C. Whelchel............................................ 542 6.1% All Directors and Executive Officers as a group (14 persons).................................................. 5,893 66.5% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson and Katherine McKay Belk -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P.O. Box 2736, Winston-Salem, N.C. 27102; Pete Huffstetler, Darrell Murphy and Gordon J. Tendler -- 1-104 Carolina Circle Mall, Greensboro, N.C. 27405; James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox -- P.O. Box 2736, Winston Salem, N.C. 27102; J.V. Properties, Montgomery Investment Company, Belk-Beck Company of Burlington, North Carolina, Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; SunTrust Bank, Augusta, N.A. -- Canton S. Faulk, V.P., P.O. Box 927, SunTrust Bank, Augusta, N.A., Augusta, GA 30903-0927; Joan C. Whelchel -- 1536 North Wheeland Avenue, Chicago, Illinois 60610. 20 <PAGE> 2233 All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 644 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 398 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 44 shares held by Belk Enterprises, Inc., 620 shares held by Belk-Beck Company of Burlington, North Carolina, Inc. and Belk Department Store of Reidsville, N.C., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Includes 2,196 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (e) Includes 44 shares held by Thomas M. Belk, Jr. as custodian for his minor children. (f) Includes 44 shares held by H. W. McKay Belk as custodian for his minor children. (g) Includes 33 shares held by John R. Belk as custodian for his minor children. (h) Includes 105 shares held by Katherine Belk Morris as custodian for her minor grandchildren. (i) Includes 500 shares held by James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox and 36 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (j) Includes 128 shares held by Residuary Trust U/W of Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (k) Includes 320 shares held by SunTrust Bank, August, N.A. and Joan C. Whelchel as Successor Co-Trustees under Agreement with Mary Stevens Whelchel dated September 15, 1950, 182 shares held by SunTrust Bank, Augusta, N.A. and Joan C. Whelchel, Successor Co-Trustees under will of Nealie Belk Stevens for Mary Stevens Whelchel, 10 shares held by SunTrust Bank, Augusta, N.A. and Joan C. Whelchel, as Successor Co-Trustees under Agreement with Merritt Cofer Whelchel, 10 shares held by SunTrust Bank, Augusta, N.A. and Joan C. Whelchel, as Successor Co-Trustees under Agreement with Mary Ruth Whelchel and 10 shares held by SunTrust Bank, Augusta, N.A. and Joan C. Whelchel, as Successor Co-Trustees under Agreement with Sadie Elizabeth Whelchel. SunTrust Bank and Joan C. Whelchel have voting and investment power with respect to such shares. (l) Includes 10 shares held by SunTrust Bank, August, N.A. as Guardian for Frankie Stevens Whelchel. SunTrust Bank has voting power with respect to such shares. 21 <PAGE> 2234 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 </TABLE> F-1 <PAGE> 2235 BELK-BECK CO. OF HIGH POINT, N.C., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 115,524 $ 201,648 Accounts receivable, net.................................. 2,737,671 3,056,518 Merchandise inventory..................................... 2,971,027 2,810,768 Receivable from affiliates, net........................... 99,996 175,524 Refundable income taxes................................... 120,100 28,685 Deferred income taxes..................................... 133,741 224,364 Other..................................................... 189,571 163,177 ----------- ----------- Total current assets........................................ 6,367,630 6,660,684 Investments................................................. 767 767 Property, plant and equipment, net.......................... 4,564,252 3,492,820 Deferred income taxes....................................... 10,909 50,216 Other noncurrent assets..................................... 70,096 63,046 ----------- ----------- $11,013,654 $10,267,533 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt.................... $ 212,500 $ 425,000 Accounts payable and accrued expenses..................... 1,020,622 632,847 ----------- ----------- Total current liabilities................................... 1,233,122 1,057,847 Long-term debt, excluding current installments.............. 3,187,500 2,762,500 Other noncurrent liabilities................................ 160,154 175,658 ----------- ----------- Total liabilities........................................... 4,580,776 3,996,005 Shareholders' equity: Common stock.............................................. 885,400 885,400 Retained earnings......................................... 5,547,478 5,386,128 ----------- ----------- Total shareholders' equity.................................. 6,432,878 6,271,528 ----------- ----------- $11,013,654 $10,267,533 =========== =========== </TABLE> F-2 <PAGE> 2236 BELK-BECK CO. OF HIGH POINT, N.C., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $11,565,282 $13,938,776 $14,452,388 Less: Leased Sales...................................... 813 222,047 342,669 ----------- ----------- ----------- Net sales............................................... 11,564,469 13,716,729 14,109,719 Operating costs and expenses............................ 10,250,725 13,137,667 14,082,720 ----------- ----------- ----------- Income from operations.................................. 1,313,744 579,062 26,999 ----------- ----------- ----------- Other income (expense): Interest, net......................................... 68,860 (79,954) (249,332) Gain (loss) on disposal of property, plant and equipment.......................................... 100 (262,875) 1,669 Miscellaneous, net.................................... (13,811) (33,565) 131,350 ----------- ----------- ----------- Total other expense, net................................ 55,149 (376,394) (116,313) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 1,368,893 202,668 (89,314) Income tax expense (benefit)............................ 530,954 73,446 (16,504) ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 837,939 129,222 (72,810) ----------- ----------- ----------- Net earnings............................................ 837,939 129,222 (72,810) Retained earnings at beginning of period................ 4,934,477 5,595,336 5,547,478 Dividends paid.......................................... (177,080) (177,080) (88,540) ----------- ----------- ----------- Retained earnings at end of period...................... $ 5,595,336 $ 5,547,478 $ 5,386,128 =========== =========== =========== </TABLE> F-3 <PAGE> 2237 BELK-BECK COMPANY OF HIGH-POINT, NC, INC. CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1997 and 1996 ended on February 1, 1997 and February 3, 1996, respectively. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. F-4 <PAGE> 2238 BELK-BECK COMPANY OF HIGH-POINT, NC, INC. CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) The Company's term loan agreement contains, among other provisions and covenants, restrictions relating to the creation of additional funded debt, except as permitted, and the disposal, expansion or purchase of fixed assets, except as permitted. Under the most restrictive of these provisions, the Company must maintain net working capital, as defined, of not less than $5,400,000; tangible net worth, as defined, of not less than $5,800,000; and a minimum cash flow coverage, as defined, of $750,000. The Company was not in compliance with the cash flow coverage restriction as of February 1, 1997. The Company was in compliance with the covenants regarding net working capital and tangible net worth. The Company has obtained waivers for the out of compliance condition. (9) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (10) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. F-5 <PAGE> 2239 BELK-BECK COMPANY OF HIGH-POINT, NC, INC. CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (11) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (12) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-6 <PAGE> 2240 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2241 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2242 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2243 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2244 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2245 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2246 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $14,109,719 $(72,810) $160,018 $968,502 $6,271,528 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $14,109,719 (72,810) 160,018 968,502 6,271,528 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... (1,361) (1,668) (1,668) Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... (1,361) (1,668) (1,668) -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. -- -- -- Adjustment for ownership in other Belk entities.................................. (767) -------- -------- -------- ---------- Per Model..................................... $(74,171) $158,350 $966,833 $6,270,761 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (201,648) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (175,524) Loans receivable from affiliates, net..... -- Liabilities Notes payable............................. -- Current installments of long-term debt.... 425,000 Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ 2,762,500 Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... 2,810,328 Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $ 2,810,328 =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2247 SUPPLEMENT NO. 53 <PAGE> 2248 BELK-BECK CO. OF HIGH POINT, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 53 <PAGE> 2249 BELK'S DEPARTMENT STORE OF JACKSONVILLE, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk's Department Store of Jacksonville, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 114.6357 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 1,151,286 shares of New Belk Class A Common Stock which will represent approximately 1.9188% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2250 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2251 BELK'S DEPARTMENT STORE OF JACKSONVILLE, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK'S DEPARTMENT STORE OF JACKSONVILLE, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk's Department Store of Jacksonville, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 114.6357 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2252 BELK'S DEPARTMENT STORE OF JACKSONVILLE, N.C., INC. SUPPLEMENT NO. 54 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 54 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK'S DEPARTMENT STORE OF JACKSONVILLE, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 21 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 2253 THE COMPANY The Company was incorporated as a North Carolina corporation in 1950. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 114.6357 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2254 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 27,048 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one 3 <PAGE> 2255 vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. 4 <PAGE> 2256 Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the 5 <PAGE> 2257 shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, to make, alter, amend and rescind the bylaws of the Company. The bylaws enacted by the Shareholders may be affected by action of the Company Board, and the bylaws enacted by the Company Board may be affected by the Shareholders; but the Company Board may not re-enact, substantially or otherwise, a bylaw which the Shareholders have repealed or altered, nor may it repeal a bylaw enacted by the Shareholders which limits the powers of the Company Board, or enhances or protects the rights of shareholders, without the consent of the Shareholders. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. 6 <PAGE> 2258 Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of 7 <PAGE> 2259 incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 2260 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official 9 <PAGE> 2261 capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which 10 <PAGE> 2262 results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a 11 <PAGE> 2263 preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. 12 <PAGE> 2264 After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. 13 <PAGE> 2265 If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2266 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $53,971,998 $53,971,998 0.6 $7,746,340 $24,636,859 EBITDA............... 4,659,157 4,654,514 7 7,746,340 24,835,258 EBIT................. 2,903,390 2,898,747 10 7,746,340 21,241,130 Net Income........... 1,579,610 1,576,642 15 -- 23,649,630 Book Equity.......... 24,469,277 20,411,407 1 -- 20,411,407 </TABLE> 15 <PAGE> 2267 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk Department Store of Charleston, S.C. Inc. 9.0013% X $31,169,909 = $ 2,805,697 Belk's Department Store of Conway, S.C., Incorporated 5.3125 X 2,033,804 = 108,046 Belk's Department Store of Morehead City, N.C., Inc. 1.6892 X 10,315,587 = 174,251 Belk's Department Store of New Bern, N.C., Incorporated .4806 X 7,893,721 = 37,937 Tags Stores, LLC 12.5590 X 15,118,749 = 1,898,764 ----------- Total $ 5,024,695 =========== Relative Operating Value of Company $24,835,258 Relative Operating Value of Other Companies Owned by Company + 5,024,695 ----------- Total Relative Value of Company = $29,859,953 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Department Store of Ahoskie, N.C., Inc. .5453% X $29,859,953 = 162,826 Belk Brothers Company 5.1760 X 29,859,953 = 1,545,551 Belk Enterprises, Inc. 8.5478 X 29,859,953 = 2,552,369 Belk Finance Company 3.8154 X 29,859,953 = 1,139,277 Belk's Department Store of Clinton, N.C., Inc. .5453 X 29,859,953 = 162,826 Belk's Department Store of Greenville, N.C., Inc. 6.0189 X 29,859,953 = 1,797,242 Belk's Department Store of Morehead City, N.C., Inc. .5453 X 29,859,953 = 162,826 Belk's Department Store of New Bern, N.C., Incorporated .5453 X 29,859,953 = 162,826 ----------- Total $ 7,685,743 =========== Total Relative Value of Company $29,859,953 Total Relative Value of Company Owned by Other Belk Companies - 7,685,743 ----------- Net Relative Value of Company = $22,174,210 =========== </TABLE> 16 <PAGE> 2268 The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $22,174,210 / $1,155,623,145 = 1.9188% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (1.9188% X 60,000,007) / 10,043 = 114.6357 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 2269 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 116.80 Book value per share(2)................................... 1,809.32 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 108.81 Book value per share...................................... 1,451.51 </TABLE> - --------------- (1) Based on 13,524 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 13,524 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 2270 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 48,459 $ 56,534 $ 53,972 Net income.................................................. 2,227 1,405 1,580 Per common share Net income (loss)(1)...................................... 164.70 103.87 116.80 Dividends................................................. 10.00 11.00 11.00 Book value(2)............................................. 1,610.65 1,703.52 1,809.32 Total assets................................................ 29,202 33,367 43,447 Shareholders' equity........................................ 21,782 23,038 24,469 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $38,214 $40,917 Income from operations...................................... 1,628 2,566 </TABLE> - --------------- (1) Based on 13,524 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 13,524 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 19 <PAGE> 2271 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. The Company intends to consolidate its current debt under a $12,000,000 revolving credit facility with a bank. BUSINESS OF THE COMPANY General. The Company is qualified to do business in North Carolina and South Carolina and operates three retail department stores in South Carolina at Inlet Square Mall in Murrell's Inlet and Briarcliffe Mall and Myrtle Square Mall in Myrtle Beach. The Company also operates a retail department store at Jacksonville Mall in Jacksonville, North Carolina. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus, with the exception that the Company operates the retail department store at Briarcliffe Mall from two locations. The stores are managed out of the Nipper group office in Summerville, South Carolina. The Company is also a partner in CK Belk-Charleston LLC. CK Belk-Charleston LLC developed the Company's distribution center in Summerville, South Carolina. The Company owns the Nipper group office in Summerville, South Carolina. Facilities. The Company operates four stores, of which all are leased under long-term leases. The store leases have termination dates ranging from 2001 through 2010. The floor space of the leased buildings ranges from 80,000 to 132,000 square feet. The Company believes the facilities are adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Sears, Target and Penney. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 20 <PAGE> 2272 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)........................................ 5,295 39.2% Thomas M. Belk, Jr. (Director and Executive Officer) (c)(e)(f)(g).............................................. 4,180 30.9% H. W. McKay Belk (Director and Executive Officer) (c)(e)(f)(h).............................................. 4,189 31.0% John R. Belk (Director and Executive Officer) (c)(e)(f)(i).............................................. 4,325 32.0% Henderson Belk (d).......................................... 220 1.6% Sarah Belk Gambrell (Director) (d).......................... 1,346 10.0% Sarah Gambrell Knight....................................... 836 6.2% W. B. Beery, III (Director) (k)............................. 2,105 15.6% Katherine Belk Morris (c)................................... 716 5.3% Thomas A. Nipper (Executive Officer)........................ 0 * Lars Petersen (Executive Officer)........................... 0 * Bob Webster (Executive Officer)............................. 0 * Montgomery Investment Company............................... 1,088 8.0% Belk Department Store of Greenville, N.C., Inc.............. 814 6.0% Belk Enterprises, Inc....................................... 1,156 8.5% J.V. Properties............................................. 700 5.2% All Directors and Executive Officers as a group (7 persons).................................................. 10,266 75.9% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Sarah Gambrell Knight -- 810 Colville Road, Charlotte, N.C. 28207; W. B. Beery, III -- 1919 Brookhaven Road, Wilmington, N.C. 28403; Thomas A. Nipper, Lars Petersen, Bob Webster -- 200 Marymeade Drive, Summerville, S.C. 29483; Montgomery Investment Company, Belk Department Store of Greenville, N.C., Inc., Belk Enterprises and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 1,088 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 34 shares held by Claudia Belk Irrevocable Trust dated 1/4/94. Claudia W. Belk, Trustee, is John M. Belk's wife. (c) Includes 256 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. 21 <PAGE> 2273 (d) Includes 220 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (e) Includes 73.75 shares held by Belk's Department Store of New Bern, N.C., Incorporated, 73.75 shares held by Belk of Ahoskie, N.C., Inc., 814 shares held by Belk Department Store of Greenville, N.C., Inc., 1,156 shares held by Belk Enterprises, Inc., 73.75 shares held by Belk's Department Store of Morehead City, N.C., Inc. and 516 shares held by Belk Finance Company and Belk Department Store of Clinton, N.C., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (f) Includes 700 shares of J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (g) Includes 16 shares held by Thomas M. Belk, Jr. as custodian for his minor children and 8 shares held as custodian for the minor children of his brother, H. W. McKay Belk. (h) Includes 24 shares held by H. W. McKay Belk as custodian for his minor children. (i) Includes 8 shares held by John R. Belk as custodian for his minor children. (j) Includes 24 shares held by Katherine Belk Morris as custodian for her minor children. (k) Includes 180 shares held by W. B. Beery, III's wife, Martha B. Beery. 22 <PAGE> 2274 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 2275 BELK'S DEPARTMENT STORE OF JACKSONVILLE, N.C., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 489,970 $ 4,897,979 Accounts receivable, net.................................. 6,794,058 7,867,723 Merchandise inventory..................................... 9,536,381 9,710,817 Receivable from affiliates, net........................... 2,779,289 -- Refundable income taxes................................... 297,720 136,999 Deferred income taxes..................................... 156,441 53,816 Other..................................................... 815,371 885,639 ----------- ----------- Total current assets........................................ 20,869,230 23,552,973 Loans receivable from affiliates, net....................... 4,131 4,095 Investments................................................. 1,507,414 6,019,460 Property, plant and equipment, net.......................... 10,701,802 13,113,199 Deferred income taxes....................................... 196,041 489,266 Other noncurrent assets..................................... 88,535 268,383 ----------- ----------- $33,367,153 $43,447,376 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt.................... $ 1,333,333 $ 1,428,068 Accounts payable and accrued expenses..................... 2,870,804 4,463,304 Payables to affiliates, net............................... -- 6,697,543 ----------- ----------- Total current liabilities................................... 4,204,137 12,588,915 Long-term debt, excluding current installments.............. 5,666,667 4,522,803 Other noncurrent liabilities................................ 457,918 1,863,424 ----------- ----------- Total liabilities........................................... 10,328,722 18,975,142 Deferred income............................................. -- 2,957 Shareholders' equity: Common stock.............................................. 1,352,400 1,352,400 Retained earnings......................................... 21,686,031 23,116,877 ----------- ----------- Total shareholders' equity.................................. 23,038,431 24,469,277 ----------- ----------- $33,367,153 $43,447,376 =========== =========== </TABLE> F-2 <PAGE> 2276 BELK'S DEPARTMENT STORE OF JACKSONVILLE, N.C., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3 FEBRUARY 1 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $48,589,770 $57,358,317 $54,917,975 Less: Leased Sales...................................... 131,064 824,701 945,977 ----------- ----------- ----------- Net sales............................................... 48,458,706 56,533,616 53,971,998 Operating costs and expenses............................ 45,009,461 53,904,999 51,037,183 ----------- ----------- ----------- Income from operations.................................. 3,449,245 2,628,617 2,934,815 ----------- ----------- ----------- Other income (expense): Interest, net......................................... 90 (438,753) (432,200) Dividend income....................................... 144 744 -- Gain (loss) on disposal of property, plant and equipment.......................................... -- 4,750 3,899 Miscellaneous, net.................................... (19,905) (35,947) (35,324) ----------- ----------- ----------- Total other expense, net................................ (19,671) (469,206) (463,625) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 3,429,574 2,159,411 2,471,190 Income tax expense (benefit)............................ 1,202,183 754,620 891,580 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 2,227,391 1,404,791 1,579,610 ----------- ----------- ----------- Net earnings............................................ 2,227,391 1,404,791 1,579,610 Retained earnings at beginning of period................ 18,337,853 20,430,004 21,686,031 Dividends paid.......................................... (135,240) (148,764) (148,764) ----------- ----------- ----------- Retained earnings at end of period...................... $20,430,004 $21,686,031 $23,116,877 =========== =========== =========== </TABLE> F-3 <PAGE> 2277 BELK'S DEPARTMENT STORE OF JACKSONVILLE, N.C., INC. CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1997 and 1996 ended on February 1, 1997 and February 3, 1996, respectively. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. F-4 <PAGE> 2278 BELK'S DEPARTMENT STORE OF JACKSONVILLE, N.C., INC. CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) LONG-TERM DEBT The Company's term loan agreement contains, among other provisions and covenants, restrictions relating to the creation of additional funded debt, except as permitted, and the disposal, expansion or purchase of fixed assets, except as permitted. Under the most restrictive of these provisions, the Company must maintain tangible net worth, as defined, of not less than $21,146,000; a minimum current ratio, as defined, of 2.5 to 1.0, a maximum ratio of total liabilities to net worth of .60 to 1; cash flow, as defined, greater than $1,500,000; limit dividends to $250,000 per year provided that the Company is in compliance with all debt covenants; limit capital expenditures during any fiscal year to $750,000; loans to $100,000, and limit investments to $1,000,000, as defined. The Company was in compliance with the tangible net worth, cash flow, and loan restrictions as of February 1, 1997. The Company was not in compliance with the current ratio, total liabilities to net worth, capital expenditures, dividends, and investment restrictions as of February 1, 1997. The Company has obtained waivers for all out of compliance conditions. (9) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. (BSS) in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. F-5 <PAGE> 2279 BELK'S DEPARTMENT STORE OF JACKSONVILLE, N.C., INC. CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (10) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (11) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (12) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-6 <PAGE> 2280 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES. SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2281 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2282 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS. SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2283 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2284 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES. SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2285 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2286 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ---------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................. $53,971,999 $1,579,610 $2,903,390 $4,659,157 $24,469,277 Adjustments to eliminate less than wholly-owned subsidiaries................. -- -- -- -- -- ----------- ---------- ---------- ---------- ----------- Adjusted Shareholders' Statement............ $53,971,999 1,579,610 2,903,390 4,659,157 24,469,277 =========== ---------- ---------- ---------- ----------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............. (2,492) (3,899) (3,899) Gain/loss on sale of securities........... -- -- -- Impairment loss........................... -- -- -- Equity in earnings of unconsolidated subsidiaries............................ -- -- -- Gain/loss on discontinued operations...... -- -- -- Adjustment to tax expense................. -- -- -- -- ---------- ---------- ---------- Total non-operating items................... (2,492) (3,899) (3,899) ---------- ---------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities..................... (476) (744) (744) Adjustment for ownership in other Belk entities................................ (4,057,870) ---------- ---------- ---------- ----------- Per Model................................... $1,576,642 $2,898,747 $4,654,514 $20,411,407 ========== ========== ========== =========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................. $(4,897,979) Negative cash balances reclassified to accounts payable...................... -- Receivables from affiliates, net........ -- Loans receivable from affiliates, net... (4,095) Liabilities Notes payable........................... -- Current installments of long-term debt.................................. 1,428,068 Current portion of obligations under capital leases........................ -- Payables to affiliates, net............. 6,697,543 Long-term debt, excluding current installments.......................... 4,522,803 Obligations under capital leases, excluding current portion............. -- Loans payable to affiliates, net........ -- ----------- Net debt (cash)............................. 7,746,340 Adjustments to eliminate less than wholly-owned subsidiaries................. -- ----------- Per Model................................... $ 7,746,340 =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2287 SUPPLEMENT NO. 54 <PAGE> 2288 BELK'S DEPARTMENT STORE OF JACKSONVILLE, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 54 <PAGE> 2289 BELK'S DEPARTMENT STORE OF LENOIR, NORTH CAROLINA, INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk's Department Store of Lenoir, North Carolina, Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 38.0651 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 243,693 shares of New Belk Class A Common Stock which will represent approximately 0.4062% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2290 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2291 BELK'S DEPARTMENT STORE OF LENOIR, NORTH CAROLINA, INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK'S DEPARTMENT STORE OF LENOIR, NORTH CAROLINA, INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk's Department Store of Lenoir, North Carolina, Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 38.0651 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2292 BELK'S DEPARTMENT STORE OF LENOIR, NORTH CAROLINA, INCORPORATED SUPPLEMENT NO. 55 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 55 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK'S DEPARTMENT STORE OF LENOIR, NORTH CAROLINA, INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/ PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 21 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 2293 THE COMPANY The Company was incorporated as a North Carolina corporation in 1928. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 38.0651 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2294 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to share the risks of the Company's uncertain prospects in its market. The Company's store is located in a shopping center which is changing its focus from a typical shopping center to an outlet furniture market. The Board of Directors is considering whether to relocate the Company's store in connection with reviewing its long term prospects in the market. The Merger would enable the Company to rely on New Belk to provide the capital necessary to effect any such relocation. If the Company does not participate in the Reorganization and is required to finance the relocation of its store on its own, there can be no assurance that the Company would be able to obtain the financing necessary to do so. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. 3 <PAGE> 2295 Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 10,700 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New 4 <PAGE> 2296 Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a 5 <PAGE> 2297 quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power nor limit their power, to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a 6 <PAGE> 2298 meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. 7 <PAGE> 2299 The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove 8 <PAGE> 2300 him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct 9 <PAGE> 2301 in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage 10 <PAGE> 2302 of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. 11 <PAGE> 2303 With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights' summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. 12 <PAGE> 2304 Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. 13 <PAGE> 2305 A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. 14 <PAGE> 2306 Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $6,614,964 $6,614,964 0.6 $ (813,634) $4,782,617 EBITDA............... 478,808 462,088 7 (813,634) 4,048,255 EBIT................. 440,689 423,969 10 (813,634) 5,053,329 Net Income........... 308,951 297,120 15 -- 4,456,800 Book Equity.......... 3,711,829 3,484,852 1 -- 3,484,852 </TABLE> 15 <PAGE> 2307 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk's Department Store of Boone, North Carolina, Incorporated 12.7946% X $12,985,599 = $ 1,661,455 Belk Department Store of Wilkesboro, N.C., Inc. 5.1220% X 3,451,898 + 176,806 ----------- Total $ 1,838,261 =========== Relative Operating Value of Company $ 5,053,329 Relative Operating Value of Other Companies Owned by Company + 1,838,261 ----------- Total Relative Value of Company = $ 6,891,590 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 18.7872% X $ 6,891,590 = $ 1,294,737 Belk Enterprises, Inc. 5.5319% X 6,891,590 = 381,236 Belk's Department Store of Boone, North Carolina, Incorporated 5.2766% X 6,891,590 = 363,642 Matthews-Belk Company 1.4468% X 6,891,590 = 99,708 Belk's Department Store of Mount Airy, North Carolina, Incorporated .8511% X 6,891,590 = 58,653 ----------- Total $ 2,197,976 =========== Total Relative Value of Company $ 6,891,590 Total Relative Value of Company Owned by Other Belk Companies - 2,197,976 ----------- Net Relative Value of Company = $ 4,693,614 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 4,693,614 / $1,155,623,145 = .4062% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.4062% X 60,000,007) / 6,402 = 38.0651 </TABLE> 16 <PAGE> 2308 (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 2309 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 32.87 Book value per share(2)................................... 394.88 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 36.13 Book value per share...................................... 481.98 </TABLE> - --------------- (1) Based on 9,400 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 9,400 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 2310 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED ------------------------------------------ JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ------------ ------------ ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $7,309 $6,684 $6,615 Net income.................................................. 203 29 309 Per common share Net income (loss)(1)...................................... 21.62 3.06 32.87 Dividends................................................. 7.50 10.00 7.50 Book value(2)............................................. 376.45 369.51 394.88 Total assets................................................ 5,149 4,667 4,439 Shareholders' equity........................................ 3,539 3,473 3,712 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $4,430 $4,514 Income from operations...................................... 194 257 </TABLE> - --------------- (1) Based on 9,400 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 9,400 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 19 <PAGE> 2311 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Lenoir Mall in Lenoir, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Matthews group office in Gastonia, North Carolina. Facilities. The Company leases its store building, which contains approximately 71,000 square feet of floor area. The current term of the lease expires in 1999, but the Company has options to extend the lease through 2019. The Company believes that Lenoir Mall is an inappropriate location from which the Company can best conduct its retail operations; consequently the Company is studying possible relocation opportunities in the Lenoir market. Competition. Specific competitors in the Company's market include Wal-Mart, K-Mart and the nearby Hickory, North Carolina, market. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 20 <PAGE> 2312 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)........................................ 4,986 53.0% Thomas M. Belk, Jr. (Director and Executive Officer) (c)(e)(f)................................................. 3,542 37.7% H. W. McKay Belk (Director and Executive Officer) (c)(e)(f)................................................. 3,538 37.6% John R. Belk (Director and Executive Officer) (c)(e)(f)..... 3,534 36.7% Sarah Belk Gambrell (Director) (d).......................... 1,396 14.9% David Belk Cannon (Director) (h)............................ 656 7.0% James K. Glenn, Jr. (Director) (g).......................... 128 1.4% B. Frank Matthews, II (Director and Executive Officer)...... 0 * Eugene Robinson Matthews (Executive Officer)................ 0 * Katherine McKay Belk (c).................................... 624 6.6% Katherine Belk Morris (c)................................... 536 5.7% Belk's Department Store of Boone North Carolina, Incorporated.............................................. 496 5.3% Belk Enterprises, Inc....................................... 520 5.5% J.V. Properties............................................. 1,766 18.8% All Directors and Executive Officers as a group (9 persons).................................................. 6,962 74.1% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Katherine McKay Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P.O. Box 2736, Winston-Salem, N.C. 27102; B. Frank Matthews, II and Eugene Robinson Matthews -- 2240 Remount Road, Gastonia, N.C. 28054; Belk's Department Store of Boone, North Carolina, Incorporated, Belk Enterprises, Inc., and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 160 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Represented by 172 shares of Mary Claudia Belk Irrevocable Trust dated 1/4/94. Claudia W. Belk, Trustee, is John M. Belk's wife. (c) Includes 464 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (d) Includes 432 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for 21 <PAGE> 2313 Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (e) Includes 80 shares held by Belk's Department Store of Mount Airy, North Carolina, Incorporated, 496 shares held by Belk's Department Store of Boone, North Carolina, Incorporated, 520 shares held by Belk Enterprises, Inc. and 136 shares held by Matthews-Belk Company, which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (f) Includes 1,766 shares of J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, has voting and investment power with respect to such shares. (g) Includes 128 shares held by James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox. Voting and investment power is vested in James K. Glenn, Jr., the Trustee. (h) Includes 180 shares held by Residuary Trust U/W Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. 22 <PAGE> 2314 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 2315 BELK'S DEPT STORE OF LENOIR, NORTH CAROLINA, INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ------------ ------------ <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 48,214 $ 51,006 Accounts receivable, net.................................. 1,249,981 1,385,057 Merchandise inventory..................................... 1,412,653 1,445,788 Receivable from affiliates, net........................... -- 30,247 Deferred income taxes..................................... 11,671 -- Other..................................................... 66,532 61,051 ---------- ---------- Total current assets........................................ 2,789,051 2,973,149 Loans receivable from affiliates, net....................... 1,147,812 732,386 Investments................................................. 226,977 226,977 Property, plant and equipment, net.......................... 337,278 326,514 Deferred income taxes....................................... 109,067 126,054 Other noncurrent assets..................................... 56,774 53,457 ---------- ---------- $4,666,959 $4,438,537 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt.................... $ 575,000 $ -- Accounts payable and accrued expenses..................... 315,487 437,815 Payables to affiliates, net............................... 112,058 -- Deferred income taxes..................................... -- 1,922 Accrued income taxes...................................... 30,347 125,008 ---------- ---------- Total current liabilities................................... 1,032,892 564,745 Other noncurrent liabilities................................ 160,689 161,963 ---------- ---------- Total liabilities........................................... 1,193,581 726,708 Shareholders' equity: Common stock.............................................. 940,000 940,000 Retained earnings......................................... 2,533,378 2,771,829 ---------- ---------- Total shareholders' equity.................................. 3,473,378 3,711,829 ---------- ---------- $4,666,959 $4,438,537 ========== ========== </TABLE> F-2 <PAGE> 2316 BELK'S DEPT STORE OF LENOIR, NORTH CAROLINA, INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ------------ ------------ <S> <C> <C> <C> Net sales.................................................. $7,308,860 $6,683,500 $6,614,964 Operating costs and expenses............................... 6,980,829 6,586,277 6,190,562 ---------- ---------- ---------- Income from operations..................................... 328,031 97,223 424,402 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (24,026) (16,895) (4,015) Dividend income.......................................... 12,160 15,200 16,720 Gain (loss) on disposal of property, plant and equipment............................................. -- 2,251 -- Miscellaneous, net....................................... 743 (11,527) (433) ---------- ---------- ---------- Total other expense, net................................... (11,123) (10,971) 12,272 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 316,908 86,252 436,674 Income tax expense (benefit)............................... 113,636 57,489 127,723 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 203,272 28,763 308,951 ---------- ---------- ---------- Net earnings............................................... 203,272 28,763 308,951 Retained earnings at beginning of period................... 2,465,843 2,598,615 2,533,378 Dividends paid............................................. (70,500) (94,000) (70,500) ---------- ---------- ---------- Retained earnings at end of period......................... $2,598,615 $2,533,378 $2,771,829 ========== ========== ========== </TABLE> F-3 <PAGE> 2317 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 2318 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 2319 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2320 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2321 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2322 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2323 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2324 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2325 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $6,614,964 $308,951 $440,689 $478,808 $3,711,829 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- -------- -------- -------- ---------- Adjusted Shareholders' Statement............... $6,614,964 308,951 440,689 478,808 3,711,829 ========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ -- -- -- Gain/loss on sale of securities.............. -- -- -- Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- -------- -------- -------- Total non-operating items...................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. (11,831) (16,720) (16,720) Adjustment for ownership in other Belk entities................................... (226,977) -------- -------- -------- ---------- Per Model...................................... $297,120 $423,969 $462,088 $3,484,852 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (51,006) Negative cash balances reclassified to accounts payable......................... -- Receivables from affiliates, net........... (30,247) Loans receivable from affiliates, net...... (732,386) Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ -- Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... -- ---------- Net debt (cash)................................ (813,639) Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ (813,639) ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2326 SUPPLEMENT NO. 55 <PAGE> 2327 BELK'S DEPARTMENT STORE OF LENOIR, N.C., INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: ,1998 ------------------ ----------------------------- Signature ----------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 55 <PAGE> 2328 BELK DEPARTMENT STORE OF LINCOLNTON, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Department Store of Lincolnton, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 228.2966 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 246,332 shares of New Belk Class A Common Stock which will represent approximately 0.4106% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2329 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2330 BELK DEPARTMENT STORE OF LINCOLNTON, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK DEPARTMENT STORE OF LINCOLNTON, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Department Store of Lincolnton, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 228.2966 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2331 BELK DEPARTMENT STORE OF LINCOLNTON, N.C., INC. SUPPLEMENT NO. 56 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 56 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK DEPARTMENT STORE OF LINCOLNTON, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 2332 THE COMPANY The Company was incorporated as a North Carolina corporation in 1924. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 228.2966 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2333 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 2,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 2334 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 2335 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them 5 <PAGE> 2336 adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without 6 <PAGE> 2337 prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more 7 <PAGE> 2338 than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 2339 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official 9 <PAGE> 2340 capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which 10 <PAGE> 2341 results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a 11 <PAGE> 2342 preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. 12 <PAGE> 2343 After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. 13 <PAGE> 2344 If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2345 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $6,049,412 $6,049,412 0.6 $ (366,519) $3,996,166 EBITDA............... 709,663 709,663 7 (366,519) 5,334,160 EBIT................. 635,913 635,913 10 (366,519) 6,725,649 Net Income........... 391,875 391,875 15 -- 5,878,125 Book Equity.......... 3,390,253 2,382,720 1 -- 2,382,720 </TABLE> 15 <PAGE> 2346 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- ---------------------- --------------------- ---------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Matthews-Belk Company 3.3203% X $35,812,651 = $ 1,189,087 ----------- Total $ 1,189,087 =========== Relative Operating Value of Company $ 6,725,649 Relative Operating Value of Other Companies Owned by Company + 1,189,087 ----------- Total Relative Value of Company = $ 7,914,736 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 13.5833% X $ 7,914,736 = $ 1,075,082 Matthews-Belk Company 26.4722% X 7,914,736 = 2,095,205 ----------- Total $ 3,170,287 =========== Total Relative Value of Company $ 7,914,736 Total Relative Value of Company Owned by Other Belk Companies - 3,170,287 ----------- Net Relative Value of Company = $ 4,744,449 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 4,744,449 / $1,155,623,145 = .4106% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1 BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.4106% X 60,000,007) / 1,079 = 228.2966 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 2347 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 217.71 Book value per share(2)................................... 1,883.47 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 216.70 Book value per share...................................... 2,890.68 </TABLE> - --------------- (1) Based on 1,800 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 1,800 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 2348 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 5,909 $ 6,001 $ 6,049 Net income.................................................. 456 283 392 Per common share Net income (loss)(1)...................................... 253.26 157.19 217.71 Dividends................................................. 40.00 45.00 45.00 Book value(2)............................................. 1,598.57 1,710.77 1,883.47 Total assets................................................ 3,393 3,547 4,465 Shareholders' equity........................................ 2,877 3,079 3,390 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $4,147 $4,785 Income from operations...................................... 332 336 </TABLE> - --------------- (1) Based on 1,800 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 1,800 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 2349 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Lincoln Center in Lincolnton, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Matthews group office in Gastonia, North Carolina. Facilities. The Company leases its store building, which contains approximately 64,000 square feet of floor area. The current term of the lease expires in 2008. The store was expanded by approximately 20,000 square feet in 1997. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart and the retail stores in nearby Gastonia, North Carolina. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 2350 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 894 49.7% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(c)(d)................................................. 810 45.0% H. W. McKay Belk (Director and Executive Officer) (a)(c)(d)................................................. 810 45.0% John R. Belk (Director) (a)(c)(d)........................... 811 45.1% Henderson Belk (Director) (b)............................... 2 * Sarah Belk Gambrell (b)..................................... 79 4.4% David Belk Cannon (Director) (f)............................ 110 6.1% James K. Glenn, Jr. (Director) (e).......................... 41 2.3% Leroy Robinson (Director) (a)............................... 73 4.1% B. Frank Matthews, II (Director and Executive Officer) (g)(h).................................................... 136 7.6% Eugene Robinson Matthews (Director and Executive Officer)... 20 1.1% Katherine Belk Morris (a)................................... 90 5.0% Walter & Fon Cornwell....................................... 100 5.6% Johnnie Schrum Waits........................................ 100 5.6% J.V. Properties............................................. 244.5 13.6% Matthews-Belk Company....................................... 476.5 26.5% Betty Choate Matthews....................................... 92 5.1% All Directors and Executive Officers as a group (10 persons).................................................. 1,250 69.4% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P.O. Box 2736, Winston-Salem, N.C. 27102; B. Frank Matthews, II, Betty Choate Matthews and Eugene Robinson Matthews -- 2240 Remount Road, Gastonia, N.C. 28054; Walter & Fon Cornwell -- 2585 23rd Avenue, N.E., Hickory, N.C. 28601; Johnnie Schrum Waits -- 1394 Shipwatch Villas, Amelia Island Plantation, Fernandina Beach, FL 32034; J.V. Properties, Matthews-Belk Company -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 73 shares held by Thomas Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 2 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for 20 <PAGE> 2351 Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Includes 476.5 shares held by Matthews-Belk Company, which shares are voted by the members of the Executive Committee of the Board of Directors of such corporation, under authority given by the directors of such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Includes 244.5 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (e) Includes 27 shares held by James K. Glenn, Jr., Trustee U/W of Daisy Belk Mattox and 14 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (f) Includes 38 shares held by Residuary Trust U/W Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (g) Includes 92 shares held by B. Frank Matthews, II's wife, Betty Choate Matthews. (h) Includes 20 shares held by First Union National Bank of N.C., B. Frank Matthews, II and Annabelle Z. Royster, Co-Trustees under the will of J.H. Matthews, Jr. The named Trustees have voting and investment power with respect to such shares. 21 <PAGE> 2352 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 </TABLE> F-1 <PAGE> 2353 BELK DEPARTMENT STORE OF LINCOLNTON, N.C., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 56,145 $ 44,840 Accounts receivable, net.................................. 850,280 978,074 Merchandise inventory..................................... 1,209,058 1,198,384 Receivable from affiliates, net........................... 569,881 525,355 Deferred income taxes..................................... 14,083 -- Other..................................................... 48,330 45,171 ---------- ---------- Total current assets........................................ 2,747,777 2,791,824 Loans receivable from affiliates, net....................... 500,000 300,000 Investments................................................. 368 1,007,533 Property, plant and equipment, net.......................... 297,133 363,924 Other noncurrent assets..................................... 1,726 1,665 ---------- ---------- $3,547,004 $4,464,946 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 360,136 $ 428,557 Deferred income taxes..................................... -- 689 Accrued income taxes...................................... 41,836 87,758 ---------- ---------- Total current liabilities................................... 401,972 517,004 Deferred income taxes....................................... 36,666 16,130 Long-term debt, excluding current installments.............. -- 503,676 Other noncurrent liabilities................................ 28,988 37,883 ---------- ---------- Total liabilities........................................... 467,626 1,074,693 Shareholders' equity: Common stock.............................................. 180,000 180,000 Retained earnings......................................... 2,899,378 3,210,253 ---------- ---------- Total shareholders' equity.................................. 3,079,378 3,390,253 ---------- ---------- $3,547,004 $4,464,946 ========== ========== </TABLE> F-2 <PAGE> 2354 BELK DEPARTMENT STORE OF LINCOLNTON, N.C., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $5,908,503 $6,001,216 $6,049,413 Operating costs and expenses............................... 5,366,014 5,571,424 5,413,111 ---------- ---------- ---------- Income from operations..................................... 542,489 429,792 636,302 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 16,467 44,632 6,337 Gain (loss) on disposal of property, plant and equipment............................................. 196,784 -- -- Miscellaneous, net....................................... (7,839) (10,340) (388) ---------- ---------- ---------- Total other expense, net................................... 205,412 34,292 5,949 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 747,901 464,084 642,251 Income tax expense (benefit)............................... 292,026 181,133 250,376 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 455,875 282,951 391,875 ---------- ---------- ---------- Net earnings............................................... 455,875 282,951 391,875 Retained earnings at beginning of period................... 2,313,552 2,697,427 2,899,378 Dividends paid............................................. (72,000) (81,000) (81,000) ---------- ---------- ---------- Retained earnings at end of period......................... $2,697,427 $2,899,378 $3,210,253 ========== ========== ========== </TABLE> F-3 <PAGE> 2355 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 2356 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 2357 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2358 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2359 SEC.SEC. 55-13-04 TO 55-13-19. Reserved for future codification purposes. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2360 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2361 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2362 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2363 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 6,049,412 $391,875 $635,913 $709,663 $3,390,253 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $ 6,049,412 391,875 635,913 709,663 3,390,253 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... -- -- -- Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. -- -- -- Adjustment for ownership in other Belk entities.................................. (1,007,533) -------- -------- -------- ---------- Per Model..................................... $391,875 $635,913 $709,663 $2,382,720 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (44,840) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (525,355) Loans receivable from affiliates, net..... (300,000) Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ 503,676 Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (366,519) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $ (366,519) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2364 SUPPLEMENT NO. 56 <PAGE> 2365 BELK DEPARTMENT STORE OF LINCOLNTON, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature -------------------------------- Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 56 <PAGE> 2366 BELK BROTHERS OF MONROE, NORTH CAROLINA, INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Brothers of Monroe, North Carolina, Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 146.3804 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 596,061 shares of New Belk Class A Common Stock which will represent approximately 0.9934% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2367 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2368 BELK BROTHERS OF MONROE, NORTH CAROLINA, INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK BROTHERS OF MONROE, NORTH CAROLINA, INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Brothers of Monroe, North Carolina, Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 146.3804 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2369 BELK BROTHERS OF MONROE, NORTH CAROLINA, INCORPORATED SUPPLEMENT NO. 57 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 57 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK BROTHERS OF MONROE, NORTH CAROLINA, INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/ PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 21 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 2370 THE COMPANY The Company was incorporated as a North Carolina corporation in 1934. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 146.3804 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2371 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 6,400 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 2372 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 2373 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them 5 <PAGE> 2374 adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without 6 <PAGE> 2375 prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more 7 <PAGE> 2376 than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 2377 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official 9 <PAGE> 2378 capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which 10 <PAGE> 2379 results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a 11 <PAGE> 2380 preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. 12 <PAGE> 2381 After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. 13 <PAGE> 2382 If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2383 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales................. $12,938,379 $12,938,379 0.6 $(1,840,229) $ 9,603,256 EBITDA.................... 1,498,834 1,489,426 7 (1,840,229) 12,266,211 EBIT...................... 1,285,799 1,276,392 10 (1,840,229) 14,604,149 Net Income................ 827,466 821,705 15 -- 12,325,575 Book Equity............... 7,070,400 6,043,501 1 -- 6,043,501 </TABLE> 15 <PAGE> 2384 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk Brothers Company .2044% X $261,959,587 = $ 535,445 Belk Enterprises, Inc. .2714% X 357,823,093 = 971,132 Parks-Belk Company, Incorporated -- Bristol, Va. 1.0418% X 12,516,874 = 130,401 Parks-Belk Company of Clarksville, Tennessee .2711% X 10,855,465 = 29,429 Belk of Covington, Ga., Inc. 2.7381% X 4,579,688 = 125,396 Belk's Department Store of Dunn, North Carolina, Incorporated 1.8181% X 14,191,195 = 258,010 Belk-Simpson Company of Hendersonville, N.C., Incorporated .2344% X 9,384,434 = 21,997 Belk's Department Store of Laurens, South Carolina, Incorporated .2776% X 4,498,430 = 12,488 Beck-Matthews Company of Macon, Georgia .8667% X 14,496,059 = 125,637 Belk of Spartanburg, S.C., Inc. .2120% X 10,010,255 = 21,222 Belk of Tocoa, Ga., Inc. 3.6707% X 4,349,964 = 159,674 ----------- Total $ 2,390,831 =========== Relative Operating Value of Company $14,604,149 Relative Operating Value of Other Companies Owned by Company + 2,390,831 ----------- Total Relative Value of Company = $16,994,980 =========== </TABLE> 16 <PAGE> 2385 The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 29.2634% X $16,994,981 = $ 4,973,308 Belk Enterprises, Inc. 1.3271% X 16,994,981 = 225,540 Belk of Orangeburg, S.C., Inc. 1.1944% X 16,994,981 = 202,988 Belk-Harry Company, Salisbury, N.C. .6636 X 16,994,981 = 112,779 ----------- Total $ 5,514,615 =========== Total Relative Value of Company $16,994,980 Total Relative Value of Company Owned by Other Belk Companies - 5,514,615 ----------- Net Relative Value of Company = $11,480,365 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $11,480,365 / $1,155,623,145 = .9934% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.9934% X 60,000,007) / 4,072 = 146.3804 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 2386 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 137.27 Book value per share(2)................................... 1,172.93 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 138.94 Book value per share...................................... 1,853.46 </TABLE> - --------------- (1) Based on 6,028 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 6,028 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 2387 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $12,545 $12,905 $12,938 Net income.................................................. 706 745 827 Per common share Net income (loss)(1)...................................... 117.10 123.57 137.27 Dividends................................................. 25.00 35.00 35.00 Book value(2)............................................. 982.09 1,070.66 1,172.93 Total assets................................................ 7,111 7,552 8,451 Shareholders' equity........................................ 5,920 6,454 7,070 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $8,917 $8,863 Income from operations...................................... 727 946 </TABLE> - --------------- (1) Based on 6,028 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 6,028 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 19 <PAGE> 2388 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Monroe Mall in Monroe, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Pennell group office in Charlotte, North Carolina. Facilities. The Company leases its store building, which contains approximately 73,000 square feet of floor area. The current term of the lease expires in 2004. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Penney and Peebles. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 20 <PAGE> 2389 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)........................................... 2,661 44.1% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(d)(e)(f).............................................. 2,223 36.9% H. W. McKay Belk (Director and Executive Officer) (b)(d)(e)(g).............................................. 2,230 37.0% John R. Belk (Director and Executive Officer) (b)(d)(e)(h).............................................. 2,145 35.6% Henderson Belk (Director) (c)............................... 4 * Sarah Belk Gambrell (Director) (c).......................... 576 9.6% David Belk Cannon (Director) (j)............................ 760 12.6% James K. Glenn, Jr. (Director) (i).......................... 116 1.9% Daisy D. Lange (Director)................................... 366 6.1% John H. Pennell (Executive Officer)......................... 0 * Montgomery Investment Company............................... 452 7.5% J.V. Properties............................................. 1,764 29.3% NationsBank as Trustee for the Daisy Belk................... 498 8.3% Doughton Lange Revocable Trust dated 3/25/97 Daisy Doughton Lange and North Carolina Bank,............... 366 6.1% Trustees for Robert L. Doughton, II under Agreement dated July 21, 1965 All Directors and Executive Officers as a group (10 persons).................................................. 5,040 83.6% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P.O. Box 2736, Winston-Salem, N.C. 27102; Daisy D. Lange -- 7 Brickwall Lane, Ruislip, Middlesex, England HA48JS, John H. Pennell, 308 East Fifth Street, Charlotte, N.C. 28202; NationsBank as Trustee for the Daisy Belk Dougthon Lange Revocable Trust dated 3/25/97 -- NationsBank, N.A., Charlotte, N.C. 28255; Montgomery Investment Company, J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 452 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 157 shares held by Milburn Investment Company, of which the Estate of Thomas M .Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas M. Belk, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk John M. Belk and Leroy Robinson. (c) Includes 4 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by 21 <PAGE> 2390 John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 40 shares held by Belk-Harry Company, 72 shares held by Belk of Orangeburg, S.C., Inc. and 80 shares held by Belk Enterprises, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under the authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (e) Includes 1,764 shares of J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (f) Includes 8 shares held by Thomas M. Belk, Jr. as custodian for his minor children, and 10 shares are held by his spouse, Sarah F. Belk. (g) Includes 3 shares held by H. W. McKay Belk as custodian for his minor children, and 10 shares are held by his spouse, Nina F. Belk. (h) Includes 8 shares held by John R. Belk as custodian for his minor children, and 10 shares are held by his spouse, Kimberly D. Belk. (i) Includes 32 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al. and 64 shares held by John Belk Stevens Trust U/W ITEM III, Section B f/b/o Mary S. Whelchel. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (j) Includes 264 shares held by Residuary Trust U/W Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (k) Includes 498 shares held by NationsBank as Trustee for the Daisy Belk Doughton Lange Revocable Trust dated 3/25/97. NationsBank has voting and investment power with respect to such shares. (l) Includes 366 shares held by Daisy Dougthon Lange and North Carolina National Bank. Trustees for Robert L. Doughton, II under Agreement dated July 21, 1965. The named Trustees have voting and investment power with respect to such shares. 22 <PAGE> 2391 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 2392 BELK BROTHERS OF MONROE, NORTH CAROLINA, INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 97,820 $ 162,734 Accounts receivable, net.................................. 2,080,219 2,368,536 Merchandise inventory..................................... 2,266,751 2,169,822 Receivable from affiliates, net........................... 1,564,627 1,916,437 Deferred income taxes..................................... 68,254 48,636 Other..................................................... 103,578 98,262 ---------- ---------- Total current assets........................................ 6,181,249 6,764,427 Loans receivable from affiliates, net....................... 8,800 8,800 Investments................................................. 528,230 1,026,900 Property, plant and equipment, net.......................... 807,664 626,730 Deferred income taxes....................................... -- 4,471 Other noncurrent assets..................................... 25,704 19,211 ---------- ---------- $7,551,647 $8,450,539 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable............................................. $ -- $ 247,742 Accounts payable and accrued expenses..................... 919,545 1,015,837 Accrued income taxes...................................... 85,963 56,215 ---------- ---------- Total current liabilities................................... 1,005,508 1,319,794 Deferred income taxes....................................... 40,575 -- Other noncurrent liabilities................................ 51,650 60,345 ---------- ---------- Total liabilities........................................... 1,097,733 1,380,139 Shareholders' equity: Common stock.............................................. 602,800 602,800 Retained earnings......................................... 5,851,114 6,467,600 ---------- ---------- Total shareholders' equity.................................. 6,453,914 7,070,400 ---------- ---------- $7,551,647 $8,450,539 ========== ========== </TABLE> F-2 <PAGE> 2393 BELK BROTHERS OF MONROE, NORTH CAROLINA, INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $12,796,104 $13,166,780 $13,242,861 Less: Leased Sales...................................... 250,793 262,162 304,482 ----------- ----------- ----------- Net sales............................................... 12,545,311 12,904,618 12,938,379 Operating costs and expenses............................ 11,382,937 11,720,234 11,641,710 ----------- ----------- ----------- Income from operations.................................. 1,162,374 1,184,384 1,296,669 ----------- ----------- ----------- Other income (expense): Interest, net......................................... 9,464 30,731 64,894 Dividend income....................................... 10,750 10,618 9,408 Gain (loss) on disposal of property, plant and equipment.......................................... 575 (278) -- Miscellaneous, net.................................... (30,586) (5,566) (20,278) ----------- ----------- ----------- Total other expense, net................................ (9,797) 35,505 54,024 ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 1,152,577 1,219,889 1,350,693 Income tax expense (benefit)............................ 446,717 475,009 523,227 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 705,860 744,880 827,466 ----------- ----------- ----------- Net earnings............................................ 705,860 744,880 827,466 Retained earnings at beginning of period................ 4,762,054 5,317,214 5,851,114 Dividends paid.......................................... (150,700) (210,980) (210,980) ----------- ----------- ----------- Retained earnings at end of period...................... $ 5,317,214 $ 5,851,114 $ 6,467,600 =========== =========== =========== </TABLE> F-3 <PAGE> 2394 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 2395 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 2396 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2397 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2398 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action created dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2399 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2400 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2401 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2402 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- ---------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................. $12,938,379 $827,467 $1,285,800 $1,498,834 $7,070,400 Adjustments to eliminate less than wholly-owned subsidiaries................. -- -- -- -- -- ----------- -------- ---------- ---------- ---------- Adjusted Shareholders' Statement............ $12,938,379 827,467 1,285,800 1,498,834 7,070,400 =========== -------- ---------- ---------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............. -- -- -- Gain/loss on sale of securities........... -- -- -- Impairment loss........................... -- -- -- Equity in earnings of unconsolidated subsidiaries............................ -- -- -- Gain/loss on discontinued operations...... -- -- -- Adjustment to tax expense................. -- -- -- -- -------- ---------- ---------- Total non-operating items................... -- -- -- -------- ---------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities..................... 5,764 9,408 9,408 Adjustment for ownership in other Belk entities................................ 1,026,900 -------- ---------- ---------- ---------- Per Model................................... $821,703 $1,276,392 $1,489,426 $6,043,500 ======== ========== ========== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................. $ (162,734) Negative cash balances reclassified to accounts payable...................... -- Receivables from affiliates, net........ (1,916,437) Loans receivable from affiliates, net... (8,800) Liabilities Notes payable........................... 247,742 Current installments of long-term debt.................................. -- Current portion of obligations under capital leases........................ -- Payables to affiliates, net............. -- Long-term debt, excluding current installments.......................... -- Obligations under capital leases, excluding current portion............. -- Loans payable to affiliates, net........ -- ----------- Net debt (cash)............................. (1,840,229) Adjustments to eliminate less than wholly-owned subsidiaries................. -- ----------- Per Model................................... $(1,840,229) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2403 SUPPLEMENT NO. 57 <PAGE> 2404 BELK BROTHERS OF MONROE, N.C., INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 57 <PAGE> 2405 BELK'S DEPARTMENT STORE OF MOREHEAD CITY, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk's Department Store of Morehead City, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 90.4704 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 421,230 shares of New Belk Class A Common Stock which will represent approximately 0.7021% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2406 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2407 BELK'S DEPARTMENT STORE OF MOREHEAD CITY, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK'S DEPARTMENT STORE OF MOREHEAD CITY, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk's Department Store of Morehead City, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 90.4704 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2408 BELK'S DEPARTMENT STORE OF MOREHEAD CITY, N.C., INC. SUPPLEMENT NO. 58 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 58 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK'S DEPARTMENT STORE OF MOREHEAD CITY, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/ PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 2409 THE COMPANY The Company was incorporated as a North Carolina corporation in 1951. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 90.4704 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2410 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 6,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one 3 <PAGE> 2411 vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. 4 <PAGE> 2412 Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the 5 <PAGE> 2413 shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, to make, alter, amend and rescind the bylaws of the Company. The bylaws enacted by the Shareholders may be affected by action of the Company Board, and the bylaws enacted by the Company Board may be affected by the Shareholders; but the Company Board may not en-enact, substantially or otherwise, a bylaw which the Shareholders have repealed or altered, nor may they repeal a bylaw enacted by the Shareholders which limits the powers of the Company Board, or enhances or protects the rights of shareholders, without the consent of the Shareholders. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. 6 <PAGE> 2414 Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of 7 <PAGE> 2415 incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 2416 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official 9 <PAGE> 2417 capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which 10 <PAGE> 2418 results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation that within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for 11 <PAGE> 2419 business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must 12 <PAGE> 2420 receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he 13 <PAGE> 2421 asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $11,029,380 $11,029,380 0.6 $ (798,407) $7,416,035 EBITDA............... 1,053,891 1,053,891 7 (798,407) 8,175,644 EBIT................. 811,181 811,181 10 (798,407) 8,910,217 Net Income........... 496,388 496,388 15 -- 7,445,820 Book Equity.......... 5,297,810 5,064,639 1 -- 5,064,639 </TABLE> 14 <PAGE> 2422 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk Brothers Company .2044% X $261,959,587 = $ 535,445 Belk's Department Store of Clinton, N.C., Inc. 5.6297% X 11,043,990 = 621,744 Belk's Department Store of Jacksonville, N.C., Inc. .5453% X 29,859,953 = 162,826 Belk's Department Store of New Bern, N.C., Incorporated 1.0813% X 7,893,721 = 85,355 ----------- Total $ 1,405,370 =========== Relative Operating Value of Company $ 8,910,217 Relative Operating Value of Other Companies Owned by Company + 1,405,370 ----------- Total Relative Value of Company = $10,315,587 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk's Department Store of Asheville, North Carolina, Incorporated 5.2703% X $10,315,587 = $ 543,662 Belk Enterprises, Inc. 5.2703 X 10,315,587 = 543,662 Belk's Department Store of Boone, North Carolina, Incorporated 5.0676 X 10,315,587 = 522,753 Belk's Department Store of Greenville, N.C., Inc. 4.0541 X 10,315,587 = 418,204 Belk's Department Store of Jacksonville, N.C., Inc. 1.6892 X 10,315,587 = 174,251 ----------- Total $ 2,202,532 =========== Total Relative Value of Company $10,315,587 Total Relative Value of Company Owned by Other Belk Companies - 2,202,532 ----------- Net Relative Value of Company = $ 8,113,055 =========== </TABLE> 15 <PAGE> 2423 The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $8,113,055 / $1,155,623,145 = .7021% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.7021% X 60,000,007) / 4,656 = 90.4704 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 2424 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 83.85 Book value per share(2)................................... 894.90 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 85.87 Book value per share...................................... 1,145.53 </TABLE> - --------------- (1) Based on 5,920 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 5,920 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 2425 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $10,639 $10,770 $11,029 Net income.................................................. 406 448 496 Per common share Net income (loss)(1)...................................... 68.65 75.59 83.85 Dividends................................................. 15.00 20.00 22.50 Book value(2)............................................. 777.96 833.55 894.90 Total assets................................................ 5,342 7,523 7,255 Shareholders' Equity........................................ 4,606 4,935 5,298 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $7,937 $8,187 Income from operations...................................... 525 669 </TABLE> - --------------- (1) Based on 5,920 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 5,920 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 2426 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Morehead Plaza in Morehead City, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Nipper group office in Summerville, South Carolina. Facilities. The Company leases its store building, which contains approximately 74,000 square feet of floor area. The current term of the lease expires in 1999, but the Company has options to extend the lease through 2014. The Company does not believe that the building is adequate to meet its current needs and is currently studying expansion opportunities at Morehead Plaza. Competition. Specific competitors in the Company's market include Wal-Mart and Sears. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 2427 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)........................................... 2,262 38.2% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(c)(e)................................................. 1,584 26.8% H. W. McKay Belk (Director and Executive Officer) (b)(c)(e)................................................. 1,584 26.8% John R. Belk (Director and Executive Officer) (b)(c)(e)..... 1,584 26.8% Henderson Belk (Director) (d)............................... 80 1.4% Sarah Belk Gambrell (Director) (d).......................... 392 6.6% Sarah Gambrell Knight....................................... 312 5.3% David Belk Cannon (Director) (f)............................ 160 2.7% W. B. Beery, III (Director)................................. 0 * Katherine Belk Morris (b)(c)................................ 320 5.4% Elizabeth K. Baker.......................................... 952 16.1% William B. Beery, IV (g).................................... 338 5.7% Martha B. Dineen (g)........................................ 338 5.7% Katherine E. Beery (g)...................................... 338 5.7% Thomas A. Nipper (Executive Officer)........................ 0 * Lars Petersen (Executive Officer)........................... 0 * Bob Webster (Executive Officer)............................. 0 * Montgomery Investment Company............................... 312 5.3% Belk's Department Store of Asheville, North Carolina, Incorporated.............................................. 312 5.3% Belk's Department Store of Boone, North Carolina, Incorporated.............................................. 300 5.1% Belk Enterprises, Inc. ..................................... 312 5.3% All Directors and Executive Officers as a group (9 persons).................................................. 3,268 55.2% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Katherine Belk Morris -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; Sarah Gambrell Knight -- 810 Colville Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; W. B. Beery, III, William B. Beery, IV, Marth B. Dineen and Katherine E. Beery -- 1919 Brookhaven Road, Wilmington, N.C. 28403; Elizabeth K. Baker, P. O. Box 1133, New Bern, N.C. 28560; Thomas A. Nipper, Lars Petersen, Bob Webster -- 200 Marymeade Drive, Summerville, S.C. 29483; Montgomery Investment Company, Belks Department Store of Asheville, North Carolina, Incorporated; Belk's Department Store of Boone, North Carolina, Incorporated; Belk Enterprises, Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. 20 <PAGE> 2428 (a) Includes 312 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 18 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Includes 124 shares held by Milburn Investment Company, of which the Estate of Thomas M. Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas M. Belk, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (d) Includes 80 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (e) Includes 312 shares held by Belk's Department Store of Ashville, North Carolina, Incorporated, 300 shares held by Belk's Department Store of Boone, North Carolina, Incorporated, 240 shares held by Belk Department Store of Greenville, N.C., Inc., 312 shares held by Belk Enterprises, Inc. and 100 shares held by Belk's Department Store of Jacksonville, N.C., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (f) Includes 50 shares held by Residuary Trust U/W Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (g) Includes 338 shares held by William B. Beery, III and Martha B. Beery Irrevocable Trust. The Trustees, William B. Beery, IV, Martha B. Dineen and Katherine E. Beery, have voting and investment power with respect to such shares. 21 <PAGE> 2429 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 2430 BELK'S DEPARTMENT STORE OF MOREHEAD CITY, N.C., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 85,345 $ 96,757 Accounts receivable, net.................................. 1,418,193 1,646,835 Merchandise inventory..................................... 1,808,303 1,801,943 Receivable from affiliates, net........................... 2,252,921 1,732,518 Deferred income taxes..................................... 15,730 33,405 Other..................................................... 97,989 99,175 ---------- ---------- Total current assets........................................ 5,678,481 5,410,633 Loans receivable from affiliates, net....................... 2,066 2,066 Investments................................................. 237 233,171 Property, plant and equipment, net.......................... 1,767,288 1,549,611 Deferred income taxes....................................... 9,000 -- Other noncurrent assets..................................... 65,647 59,032 ---------- ---------- $7,522,719 $7,254,513 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable............................................. $1,700,000 $ 800,000 Current installments of long-term debt.................... -- 77,645 Accounts payable and accrued expenses..................... 698,589 725,136 Accrued income taxes...................................... 54,624 39,396 ---------- ---------- Total current liabilities................................... 2,453,213 1,642,177 Deferred income taxes....................................... -- 20,381 Long-term debt, excluding current installments.............. -- 155,289 Other noncurrent liabilities................................ 134,884 138,856 ---------- ---------- Total liabilities........................................... 2,588,097 1,956,703 Shareholders' equity: Common stock.............................................. 592,000 592,000 Retained earnings......................................... 4,342,622 4,705,810 ---------- ---------- Total shareholders' equity.................................. 4,934,622 5,297,810 ---------- ---------- $7,522,719 $7,254,513 ========== ========== </TABLE> F-2 <PAGE> 2431 BELK'S DEPARTMENT STORE OF MOREHEAD CITY, N.C., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales............................................... $10,638,638 $10,769,924 $11,029,380 Operating costs and expenses............................ 9,924,449 10,019,534 10,220,661 ----------- ----------- ----------- Income from operations.................................. 714,189 750,390 808,719 ----------- ----------- ----------- Other income (expense): Interest, net......................................... (39,700) (12,546) (10,175) Gain (loss) on disposal of property, plant and equipment.......................................... -- 3,500 -- Miscellaneous, net.................................... (5,997) (7,514) 2,463 ----------- ----------- ----------- Total other expense, net................................ (45,697) (16,560) (7,712) ----------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 668,492 733,830 801,007 Income tax expense (benefit)............................ 262,098 286,330 304,619 ----------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 406,394 447,500 496,388 ----------- ----------- ----------- Net earnings............................................ 406,394 447,500 496,388 Retained earnings at beginning of period................ 3,695,928 4,013,522 4,342,622 Dividends paid.......................................... (88,800) (118,400) (133,200) ----------- ----------- ----------- Retained earnings at end of period...................... $ 4,013,522 $ 4,342,622 $ 4,705,810 =========== =========== =========== </TABLE> F-3 <PAGE> 2432 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 2433 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 2434 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2435 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2436 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2437 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. A-4 <PAGE> 2438 (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-5 <PAGE> 2439 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $11,029,380 $496,388 $811,181 $1,053,891 $5,297,810 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- ---------- ---------- Adjusted Shareholders' Statement.............. $11,029,380 496,388 811,181 1,053,891 5,297,810 =========== -------- -------- ---------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... -- -- -- Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- ---------- Total non-operating items..................... -- -- -- -------- -------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. -- -- -- Adjustment for ownership in other Belk entities.................................. (233,171) -------- -------- ---------- ---------- Per Model..................................... $496,388 $811,181 $1,053,891 $5,064,639 ======== ======== ========== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (96,757) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (1,732,518) Loans receivable from affiliates, net..... (2,066) Liabilities Notes payable............................. 800,000 Current installments of long-term debt.... 77,645 Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ 155,289 Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (798,407) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $ (798,407) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2440 SUPPLEMENT NO. 58 <PAGE> 2441 BELK'S DEPARTMENT STORE OF MOREHEAD CITY, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 58 <PAGE> 2442 BELK'S DEPARTMENT STORE OF MOUNT AIRY, NORTH CAROLINA, INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk's Department Store of Mount Airy, North Carolina, Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 29.8331 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 69,869 shares of New Belk Class A Common Stock which will represent approximately 0.1164% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2443 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2444 BELK'S DEPARTMENT STORE OF MOUNT AIRY, NORTH CAROLINA, INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK'S DEPARTMENT STORE OF MOUNT AIRY, NORTH CAROLINA, INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk's Department Store of Mount Airy, North Carolina, Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 29.8331 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2445 BELK'S DEPARTMENT STORE OF MOUNT AIRY, NORTH CAROLINA, INCORPORATED SUPPLEMENT NO. 59 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 59 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK'S DEPARTMENT STORE OF MOUNT AIRY, NORTH CAROLINA, INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/ PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 21 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL STATEMENTS........................................ B-1 </TABLE> <PAGE> 2446 THE COMPANY The Company was incorporated as a North Carolina corporation in 1928. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 29.8331 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2447 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 6,676 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 2448 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 2449 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them 5 <PAGE> 2450 adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without 6 <PAGE> 2451 prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more 7 <PAGE> 2452 than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 2453 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official 9 <PAGE> 2454 capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which 10 <PAGE> 2455 results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation that within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a 11 <PAGE> 2456 preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. 12 <PAGE> 2457 After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. 13 <PAGE> 2458 If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2459 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales.................... $6,524,201 $6,524,201 0.6 $2,443,527 $1,470,993 EBITDA....................... 751,185 683,729 7 2,443,527 2,342,575 EBIT......................... 514,679 447,223 10 2,443,527 2,028,702 Net Income................... 199,606 159,776 15 -- 2,396,640 Book Equity.................. 3,075,844 1,997,848 1 -- 1,997,848 </TABLE> 15 <PAGE> 2460 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk's Department Store of Eden, N.C., Inc. 16.9875% X $ 3,010,826 = $ 511,464 Belk's Department Store of Lenoir, North Carolina, Incorporated .8511% X 6,891,590 = 58,654 Belk of Thomasville, N.C., Inc. 36.3496% X 1,980,347 = 719,848 ----------- Total $ 1,289,967 =========== Relative Operating Value of Company $ 2,396,640 Relative Operating Value of Other Companies Owned by Company + 1,289,967 ----------- Total Relative Value of Company = $ 3,686,607 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 3.6471% X $ 3,686,607 = $ 134,454 Belk Enterprises, Inc. 55.1122% X 3,686,607 = 2,031,770 Belk's Department Store of Boone, North Carolina, Incorporated 1.8703% X 3,686,607 = 68,951 Belk-Beck Company of Burlington, North Carolina, Inc. 2.8678 X 3,686,607 = 105,725 ----------- Total $ 2,340,900 =========== Total Relative Value of Company $ 3,686,607 Total Relative Value of Company Owned by Other Belk Companies - 2,340,900 ----------- Net Relative Value of Company = $ 1,345,707 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $1,345,707 / $1,155,623,145 = .1164% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.1164% X 60,000,007) / 2,342 = 29.8331 </TABLE> 16 <PAGE> 2461 (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 2462 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 31.11 Book value per share(2)................................... 479.40 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 28.32 Book value per share...................................... 377.75 </TABLE> - --------------- (1) Based on 6,416 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 6,416 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 2463 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 6,549 $ 6,382 $ 6,524 Net income.................................................. 99 94 200 Per common share Net income (loss)(1)...................................... 15.02 14.44 31.11 Dividends................................................. 10.00 7.73 7.50 Book value(2)............................................. 459.73 466.93 479.40 Total assets................................................ 5,659 5,310 6,219 Shareholders' equity........................................ 3,040 2,996 3,076 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... 4,448 4,799 Income from operations...................................... 223 414 </TABLE> - --------------- (1) Based on 6,612, 6,514 and 6,416 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997, respectively. (2) Based on 6,612, 6,416 and 6,416 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997, respectively. 19 <PAGE> 2464 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Income from operations increased in fiscal year 1997 due to a decreased cost of merchandise resulting from better inventory management and lower markdowns. Comparable store sales increased in fiscal year 1997 and for the nine months ended November 1, 1997 due to a successful recovery of market share that was lost in the prior two years. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Mayberry Mall in Mount Airy, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Huffstetler group office in Greensboro, North Carolina. Facilities. The Company owns the store property and building, which contains approximately 58,000 square feet of floor area, together with an adjacent parking area. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, K-Mart and Penney. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 20 <PAGE> 2465 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)..... 4,322 67.4% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(b)(c)................................................. 4,142 64.6% H. W. McKay Belk (Director and Executive Officer) (a)(b)(c)................................................. 4,142 64.6% John R. Belk (Director and Executive Officer) (a)(b)(c)..... 4,142 64.6% Henderson Belk (Director)................................... 0 * Sarah Belk Gambrell (Director).............................. 146 2.3% David Belk Cannon (Director)................................ 168 2.6% James K. Glenn, Jr. (Director) (d).......................... 128 2.0% Leroy Robinson (Director) (a)............................... 20 * Guy L. Byerly, Jr. (Director)............................... 700 10.9% Belk Enterprises, Inc. ..................................... 3,536 55.1% Pete Huffstetler (Executive Officer)........................ 0 * Gordon J. Tendler (Executive Officer)....................... 0 * Darrell Murphy (Executive Officer).......................... 0 * All Directors and Executive Officers as a group (11 persons).................................................. 5,070 79.0% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P. O. Box 2736, Winston-Salem, N.C. 27102; Guy L. Byerly, Jr. -- 1530 Queens Road, Charlotte, N.C. 28207; Pete Huffstetler, Darrell Murphy and Gordon J. Tendler -- 1-104 Carolina Circle Mall, Greensboro, N.C. 27405; Belk Enterprises, Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 20 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (b) Includes 120 shares held by Belk's Department Store of Boone, North Carolina, Incorporated, 3,536 shares held by Belk Enterprises, Inc. and 184 shares held by Belk-Beck Company of Burlington, North Carolina, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. 21 <PAGE> 2466 (c) Includes 234 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (d) Includes 128 shares held by James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox. Voting and investment power is vested in James K. Glenn, Jr., the Trustee. 22 <PAGE> 2467 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 2468 BELK'S DEPARTMENT STORE OF MOUNT AIRY, NORTH CAROLINA, INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 65,678 $ 106,521 Accounts receivable, net.................................. 1,114,358 1,247,839 Merchandise inventory..................................... 1,163,880 1,220,506 Deferred income taxes..................................... 13,328 12,409 Other..................................................... 56,125 51,024 ---------- ---------- Total current assets........................................ 2,413,369 2,638,299 Loans receivable from affiliates, net....................... -- 718 Investments................................................. 145,522 1,077,996 Property, plant and equipment, net.......................... 2,720,111 2,489,194 Other noncurrent assets..................................... 31,022 12,987 ---------- ---------- $5,310,024 $6,219,194 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt.................... $ 506,613 $ 506,672 Accounts payable and accrued expenses..................... 317,263 391,755 Payables to affiliates, net............................... 853,100 2,044,097 Accrued income taxes...................................... 25,665 88,595 ---------- ---------- Total current liabilities................................... 1,702,641 3,031,119 Deferred income taxes....................................... 37,316 39,780 Long-term debt, excluding current installments.............. 506,721 -- Other noncurrent liabilities................................ 67,523 72,451 ---------- ---------- Total liabilities........................................... 2,314,201 3,143,350 Shareholders' equity: Common stock.............................................. 641,600 641,600 Additional paid in capital................................ 3,221 3,221 Retained earnings......................................... 2,351,002 2,431,023 ---------- ---------- Total shareholders' equity.................................. 2,995,823 3,075,844 ---------- ---------- $5,310,024 $6,219,194 ========== ========== </TABLE> F-2 <PAGE> 2469 BELK'S DEPARTMENT STORE OF MOUNT AIRY, NORTH CAROLINA, INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $6,548,985 $6,382,264 $6,524,201 Operating costs and expenses............................... 6,236,485 6,096,806 6,064,754 ---------- ---------- ---------- Income from operations..................................... 312,500 285,458 459,447 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (154,684) (166,923) (176,628) Dividend income.......................................... 1,600 -- 600 Gain (loss) on disposal of property, plant and equipment............................................. (7,230) 2,161 (98) Miscellaneous, net....................................... (10,703) (12,399) (12,225) ---------- ---------- ---------- Total other expense, net................................... (171,017) (177,161) (188,351) ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 141,483 108,297 271,096 Income tax expense (benefit)............................... 42,195 14,220 111,024 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 99,288 94,077 160,072 Equity in earnings (loss) of unconsolidated entity, net of tax...................................................... -- -- 39,534 ---------- ---------- ---------- Net earnings............................................... 99,288 94,077 199,606 Retained earnings at beginning of period................... 2,342,172 2,375,340 2,351,002 Dividends paid............................................. (66,120) (49,590) (48,120) Purchase of treasury stock................................. -- (68,825) -- Retained earnings adjustments.............................. -- -- (71,465) ---------- ---------- ---------- Retained earnings at end of period......................... $2,375,340 $2,351,002 $2,431,023 ========== ========== ========== </TABLE> F-3 <PAGE> 2470 BELK'S DEPARTMENT STORE OF MOUNT AIRY, NORTH CAROLINA, INCORPORATED CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company." The Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1997, 1996, and 1995 ended on February 1, 1997, February 3, 1996, and January 31, 1995 respectively. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders equity of the subsidiaries are included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholder's equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. F-4 <PAGE> 2471 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1995 and 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March, 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 2472 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (12) RETAINED EARNINGS ADJUSTMENT Adjustment to Retained Earnings of the Company at February 1, 1997, relates to the Company's portion of the retirement of stock by Hudson-Belk Company of Thomasville, N.C. F-6 <PAGE> 2473 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2474 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2475 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2476 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2477 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2478 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2479 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 6,524,201 $199,606 $514,679 $751,185 $3,075,844 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $ 6,524,201 199,606 514,679 751,185 3,075,844 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... 58 98 98 Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. (39,534) (66,954) (66,954) Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... (39,476) (66,856) (66,856) -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. (354) (600) (600) Adjustment for ownership in other Belk entities.................................. (1,077,996) -------- -------- -------- ---------- Per Model..................................... $159,776 $447,223 $683,729 $1,997,848 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (106,523) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... -- Loans receivable from affiliates, net..... (718) Liabilities Notes payable............................. -- Current installments of long-term debt.... 506,672 Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... 2,044,097 Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... 2,443,528 Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $ 2,443,528 =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2480 SUPPLEMENT NO. 59 <PAGE> 2481 BELK'S DEPARTMENT STORE OF MOUNT AIRY, N.C., INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 59 <PAGE> 2482 BELK'S DEPARTMENT STORE OF NEW BERN, N.C., INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk's Department Store of New Bern, N.C., Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 82.0669 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 193,432 shares of New Belk Class A Common Stock which will represent approximately 0.3224% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2483 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2484 BELK'S DEPARTMENT STORE OF NEW BERN, N.C., INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK'S DEPARTMENT STORE OF NEW BERN, N.C., INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk's Department Store of New Bern, N.C., Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 82.0669 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2485 BELK'S DEPARTMENT STORE OF NEW BERN, N.C., INCORPORATED SUPPLEMENT NO. 60 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 60 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK'S DEPARTMENT STORE OF NEW BERN, N.C., INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 21 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................. B-1 </TABLE> <PAGE> 2486 THE COMPANY The Company was incorporated as a North Carolina corporation in 1934. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 82.0669 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2487 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 6,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one 3 <PAGE> 2488 vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. 4 <PAGE> 2489 Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the 5 <PAGE> 2490 shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders be approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. 6 <PAGE> 2491 Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable 7 <PAGE> 2492 range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares 8 <PAGE> 2493 entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. 9 <PAGE> 2494 Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 2495 circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation that within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 2496 The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization 12 <PAGE> 2497 Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine 13 <PAGE> 2498 the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2499 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ----------- ----------- -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales.................. $11,153,974 $11,153,974 0.6 $1,902,755 $4,789,629 EBITDA..................... 1,293,640 1,292,540 7 1,902,755 7,145,025 EBIT....................... 959,675 958,575 10 1,902,755 7,682,995 Net Income................. 472,349 471,673 15 -- 7,075,095 Book Equity................ 3,708,611 3,678,878 1 -- 3,678,878 </TABLE> 15 <PAGE> 2500 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk's Department Store of Asheville, North Carolina, Incorporated .5917% X $ 8,095,359 = $ 47,900 Belk's Department Store of Jacksonville, N.C., Inc. .5453 X 29,859,953 = 162,826 ----------- Total $ 210,726 =========== Relative Operating Value of Company $ 7,682,995 Relative Operating Value of Other Companies Owned by Company + 210,726 ----------- Total Relative Value of Company = $ 7,893,721 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk's Department Store of Asheville, North Carolina, Incorporated 1.7221% X $ 7,893,721 = $ 135,938 Belk Brothers Company 21.706 X 7,893,721 = 1,713,411 Belk Enterprises, Inc. 17.1406 X 7,893,721 = 1,353,031 Belk Department Store of Greenville, N.C., Inc. 10.6728 X 7,893,721 = 842,481 Belk's Department Store of Jacksonville, N.C., Inc. .4806 X 7,893,721 = 37,937 Belk's Department Store of Morehead City, N.C., Inc. 1.0813 X 7,893,721 = 85,355 ----------- Total $ 4,168,153 =========== Total Relative Value of Company $ 7,893,721 Total Relative Value of Company Owned by Other Belk Companies - 4,168,153 ----------- Net Relative Value of Company = $ 3,725,568 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 3,725,568 / $1,155,623,145 = .3224% </TABLE> 16 <PAGE> 2501 The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.3224% X 60,000,007) / 2,357 = 82.0669 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 2502 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 94.58 Book value per share(2)................................... 742.61 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 77.90 Book value per share...................................... 1,039,13 </TABLE> - --------------- (1) Based on 4,994 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 4,994 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 2503 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $9,838 $10,284 $11,154 Net income.................................................. 481 368 472 Per common share Net income (loss)(1)...................................... 96.35 73.78 94.58 Dividends................................................. 20.00 25.00 25.00 Book value(2)............................................. 624.25 673.03 742.61 Total assets................................................ 5,054 6,656 6,672 Shareholders' equity........................................ 3,117 3,361 3,709 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $7,701 $7,845 Income from operations...................................... 526 635 </TABLE> - --------------- (1) Based on 4,994 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 4,994 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 19 <PAGE> 2504 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Twin Rivers Mall in New Bern, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Nipper group office in Summerville, South Carolina. Facilities. The Company owns the store property and building, which contains approximately 82,000 square feet of floor area, together with an adjacent parking area. The Company believes the store building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Sears, Penney, Target, Goody's and Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 20 <PAGE> 2505 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d).............................................. 2,915 58.4% Thomas M. Belk, Jr. (Director and Executive Officer) (c)(d)(e)................................................. 2,779 55.6% H. W. McKay Belk (Director and Executive Officer) (c)(d)(f)................................................. 2,677 53.6% John R. Belk (Director) (c)(d)(g)........................... 2,721 54.5% Henderson Belk (Director) (b)............................... 2 * Sarah Belk Gambrell (b)..................................... 275 5.5% Leroy Robinson (Director)................................... 0 * W. B. Beery, III (Director)................................. 0 * Elizabeth K. Baker.......................................... 316 6.3% William B. Beery, IV (h).................................... 376 7.5% Martha B. Dineen (h)........................................ 376 7.5% Katherine E. Beery (h)...................................... 376 7.5% Thomas A. Nipper (Executive Officer)........................ 0 * Lars Petersen (Executive Officer)........................... 0 * Bob Webster (Executive Officer)............................. 0 * William B. Beery, III and Martha B. Beery Irrevocable Trust..................................................... 376 7.5% Belk Department Store of Greenville, N.C., Inc. ............ 533 10.7% Belk Enterprises, Inc. ..................................... 856 17.1% J.V. Properties............................................. 1,084 21.7% All Directors and Executive Officers as a group (8 persons).................................................. 3,181 63.7% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; W. B. Beery, III, William B. Beery, IV, Martha B. Dineen and Katherine E. Beery -- 1919 Brookhaven Road, Wilmington, N.C. 28403; Elizabeth K. Baker, P.O. Box 1133, New Bern, N.C. 28560; Thomas A. Nipper, Lars Petersen, Bob Webster -- 200 Marymeade Drive, Summerville, S.C. 29483; Belk Department Store of Greenville, N.C., Inc., Belk Enterprises, Inc. and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 160 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 2 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for 21 <PAGE> 2506 Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (c) Includes 86 shares held by Belk's Department Store of Asheville, North Carolina, Incorporated, 533 shares held by Belk Department Store of Greenville, N.C., Inc., 856 shares held by Belk Enterprises, Inc., 24 shares held by Belk's Department Store of Jacksonville, N.C., Inc. and 54 shares held by Belk's Department Store of Morehead City, N.C., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (d) Includes 1,084 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (e) Includes 8 shares held by Thomas M. Belk, Jr. as custodian for his minor children and 64 shares held as custodian for the minor children of his brother, H. W. McKay Belk. (f) Includes 24 shares held by H. W. McKay Belk as custodian for his minor children. (g) Includes 8 shares held by John R. Belk as custodian for his minor children. (h) Includes 376 shares held by William B. Beery, III and Martha B. Beery Irrevocable Trust. The Trustees, William B. Beery, IV, Martha B. Dineen and Katherine E. Beery, have voting and investment power with respect to such shares. 22 <PAGE> 2507 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 2508 BELK'S DEPARTMENT STORE OF NEW BERN, N.C., INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 90,094 $ 94,650 Accounts receivable, net.................................. 1,529,280 1,847,030 Merchandise inventory..................................... 1,850,098 1,894,968 Deferred income taxes..................................... 17,634 -- Other..................................................... 73,234 77,342 ---------- ---------- Total current assets........................................ 3,560,340 3,913,990 Investments................................................. 29,733 29,733 Property, plant and equipment, net.......................... 3,023,896 2,692,292 Other noncurrent assets..................................... 42,163 35,711 ---------- ---------- $6,656,132 $6,671,726 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable............................................. $1,000,000 $1,000,000 Current installments of long-term debt.................... 150,000 200,000 Accounts payable and accrued expenses..................... 599,234 750,436 Payables to affiliates, net............................... 514,826 147,079 Deferred income taxes..................................... -- 5,016 Accrued income taxes...................................... 73,775 67,278 ---------- ---------- Total current liabilities................................... 2,337,835 2,169,809 Deferred income taxes....................................... 58,148 85,121 Long-term debt, excluding current installments.............. 850,000 650,000 Other noncurrent liabilities................................ 49,037 58,185 ---------- ---------- Total liabilities........................................... 3,295,020 2,963,115 Shareholders' equity: Common stock.............................................. 499,400 499,400 Retained earnings......................................... 2,861,712 3,209,211 ---------- ---------- Total shareholders' equity.................................. 3,361,112 3,708,611 ---------- ---------- $6,656,132 $6,671,726 ========== ========== </TABLE> F-2 <PAGE> 2509 BELK'S DEPARTMENT STORE OF NEW BERN, N.C., INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 7, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.............................................. $9,838,174 $10,284,340 $11,153,974 Operating costs and expenses........................... 8,944,350 9,502,749 10,195,391 ---------- ----------- ----------- Income from operations................................. 893,824 781,591 958,583 ---------- ----------- ----------- Other income (expense): Interest, net........................................ (100,437) (170,112) (190,851) Dividend income...................................... -- -- 600 Gain (loss) on disposal of property, plant and equipment......................................... 4,036 -- 500 Miscellaneous, net................................... (8,783) (5,771) (9) ---------- ----------- ----------- Total other expense, net............................... (105,184) (175,883) (189,760) ---------- ----------- ----------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities............................................. 788,640 605,708 768,823 Income tax expense (benefit)........................... 307,468 237,228 296,474 ---------- ----------- ----------- Earnings from continuing operations before equity in earnings of unconsolidated entities.................. 481,172 368,480 472,349 ---------- ----------- ----------- Net earnings........................................... 481,172 368,480 472,349 Retained earnings at beginning of period............... 2,236,790 2,618,082 2,861,712 Dividends paid......................................... (99,880) (124,850) (124,850) ---------- ----------- ----------- Retained earnings at end of period..................... $2,618,082 $ 2,861,712 $ 3,209,211 ========== =========== =========== </TABLE> F-3 <PAGE> 2510 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 2511 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 2512 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2513 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2514 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2515 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2516 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2517 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2518 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $11,153,974 $472,349 $959,675 $1,293,640 $3,708,611 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- ---------- ---------- Adjusted Shareholders' Statement.............. $11,153,974 472,349 959,675 1,293,640 3,708,611 =========== -------- -------- ---------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... (306) (499) (499) Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- ---------- Total non-operating items..................... (306) (499) (499) -------- -------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. (369) (600) (600) Adjustment for ownership in other Belk entities.................................. (29,733) -------- -------- ---------- ---------- Per Model..................................... $471,673 $958,575 $1,292,540 $3,678,878 ======== ======== ========== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (94,650) Negative cash balances reclassified to accounts payable........................ 326 Receivables from affiliates, net.......... -- Loans receivable from affiliates, net..... -- Liabilities Notes payable............................. 1,000,000 Current installments of long-term debt.... 200,000 Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... 147,079 Long-term debt, excluding current installments............................ 650,000 Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... 1,902,755 Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $ 1,902,755 =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2519 SUPPLEMENT NO. 60 <PAGE> 2520 BELK'S DEPARTMENT STORE OF NEW BERN, N.C., INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 60 <PAGE> 2521 HUDSON-BELK COMPANY , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Hudson-Belk Company (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 37.2881 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 2,860,855 shares of New Belk Class A Common Stock which will represent approximately 4.7681% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid <PAGE> 2522 envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2523 HUDSON-BELK COMPANY ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF HUDSON-BELK COMPANY: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Hudson-Belk Company (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 37.2881 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2524 HUDSON-BELK COMPANY SUPPLEMENT NO. 61 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 61 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO HUDSON-BELK COMPANY (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 General................................................... 20 Results of Operations..................................... 20 Comparison of Nine Months Ended November 1, 1997 and November 2, 1996........................................ 20 Comparison of Fiscal Years Ended February 1, 1997 and February 3, 1996........................................ 21 Comparison of Fiscal Years Ended February 3, 1996 and January 31, 1995........................................ 21 Seasonality and Quarterly Fluctuations.................... 22 Liquidity and Capital Resources........................... 22 Impact of Inflation....................................... 23 BUSINESS OF THE COMPANY..................................... 23 SECURITY OWNERSHIP OF THE COMPANY........................... 25 INDEX TO HISTORICAL FINANCIAL STATEMENTS.................... F-1 Report of KPMG Peat Marwick LLP, Independent Auditors..... F-2 Balance Sheets............................................ F-3 Statements of Income...................................... F-4 Statements of Shareholders' Equity........................ F-5 Statements of Cash Flows.................................. F-6 Notes to Consolidated Financial Statements................ F-7 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION.................................... B-1 </TABLE> <PAGE> 2525 THE COMPANY The Company was incorporated as a North Carolina corporation in 1915. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 37.2881 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2526 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 100,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one 3 <PAGE> 2527 vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. 4 <PAGE> 2528 Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. The DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the 5 <PAGE> 2529 shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or one or more series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. 6 <PAGE> 2530 Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable 7 <PAGE> 2531 range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificates divides the directors of New Belk into three classes, designated Class 1, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares 8 <PAGE> 2532 entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. 9 <PAGE> 2533 Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 2534 circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 2535 The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) and the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholder's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholder's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization 12 <PAGE> 2536 Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine 13 <PAGE> 2537 the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2538 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ------------ ------------ -------- ---------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales................ $124,211,976 $124,211,976 0.6 $5,400,591 $69,126,595 EBITDA................... 9,831,574 9,816,838 7 5,400,591 63,317,275 EBIT..................... 7,025,850 7,011,114 10 5,400,591 64,710,549 Net Income............... 3,746,222 3,736,899 15 -- 56,053,485 Book Equity.............. 55,012,725 52,584,656 1 -- 52,584,656 </TABLE> 15 <PAGE> 2539 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk's Department Store of Albany, Georgia .1667% X $ 6,361,246 = $ 10,604 Belk of Miss., Inc. .1634 X 19,360,988 = 31,636 Belk of Danville, Va., Inc. .3595 X 16,469,104 = 59,206 Hudson-Belk Co. of Fuquay -- Varina, N.C., Inc. .5898 X 5,660,048 = 33,383 Tags Stores, LLC 12.0670 X 15,118,749 = 1,824,380 ----------- Total $ 1,959,209 =========== Relative Operating Value of Company $69,126,595 Relative Operating Value of Other Companies Owned by Company + 1,959,209 ----------- Total Relative Value of Company = $71,085,804 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 9.8545% X $71,085,803 = $ 7,005,151 Belk Enterprises, Inc. 11.7731 X 71,085,803 = 8,369,003 Matthews-Belk Company .1344 X 71,085,803 = 95,539 Belk of Orangeburg, S.C., Inc. .7042 X 71,085,803 = 500,586 Hudson-Belk Co, of Fuquay -- Varina, N.C., Inc. .0202 X 71,085,803 = 14,359 ----------- Total $15,984,638 =========== Total Relative Value of Company $71,085,804 Total Relative Value of Company Owned by Other Belk Companies - 15,984,638 ----------- Net Relative Value of Company = $55,101,166 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $55,101,166 / $1,155,623,145 = 4.7681% </TABLE> 16 <PAGE> 2540 The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (4.7681% X 60,000,007) / 76,723 = 37.2881 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 17 <PAGE> 2541 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share, and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR NINE MONTHS ENDED FEBRUARY 1, ENDED NOVEMBER 1, 1997 1997 ----------------- ----------------- <S> <C> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 37.85 $ 17.37 Book value per share(2)................................... 555.80 561.17 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 0.28 Book value per share(4)................................... 12.66 12.79 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 35.39 10.51 Book value per share...................................... 472.14 476.86 </TABLE> - --------------- (1) Based on 98,980 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997 and the nine-month period ended November 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 98,980 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the periods presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying the New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 18 <PAGE> 2542 SELECTED HISTORICAL FINANCIAL INFORMATION The following selected historical financial information of the Company presented below under the captions "Selected Statement of Income Data" and "Selected Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended February 1, 1997 are derived from the financial statements of the Company. The financial statements as of February 1, 1997 and for the year then ended have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Such financial statements, and the report thereon, are included elsewhere in this Prospectus Supplement. The selected data presented below for, and as of the end of, each of the years in the four-year period ended February 3, 1996 and for the nine-month periods ended November 2, 1996 and November 1, 1997, and as of November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. The information presented below under the caption "Selected Operating Data" is unaudited. Selected historical combined and pro forma financial data for the Belk Companies is included in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED ------------------------------------------------------------------- ------------------------- FEBRUARY 2, FEBRUARY 1, JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1993 1994 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> SELECTED STATEMENT OF INCOME Revenues...................... 122,390,054 125,017,407 127,943,752 125,517,063 126,554,654 86,172,090 88,428,807 Cost of goods sold............ 84,601,397 85,946,863 86,467,184 85,238,903 86,988,508 59,406,094 60,528,460 Depreciation and amortization................ 2,798,477 2,731,868 2,824,673 3,112,952 2,805,724 2,145,274 1,963,414 Net income.................... 3,736,150 5,179,096 4,866,474 3,219,484 3,746,222 1,522,322 1,719,473 Net income per share(1)....... 37.75 52.32 49.17 32.53 37.85 15.38 17.37 Dividends per share........... 10.00 10.00 11.00 12.00 12.00 12.00 12.00 Weighted average number of shares outstanding.......... 98,980 98,980 98,980 98,980 98,980 98,980 98,980 SELECTED BALANCE SHEET DATA: Accounts receivable -- net.... 21,188,696 20,720,877 19,820,146 19,766,701 21,232,909 20,186,663 20,946,860 Merchandise inventories....... 23,953,158 25,484,308 23,267,802 27,504,793 26,970,504 33,927,159 34,944,598 Working capital............... 40,099,809 43,050,612 42,836,859 34,655,080 38,178,996 33,386,246 37,756,495 Total assets.................. 79,090,649 81,837,804 80,240,550 78,806,027 78,847,101 84,703,643 85,918,662 Short-term debt............... -- -- -- 4,300,000 3,250,000 9,500,000 7,000,000 Long-term debt................ 21,662,434 18,721,736 13,401,615 7,053,256 4,753,252 5,328,253 4,561,585 Capitalized lease obligations................. -- -- -- -- -- -- -- Shareholders' equity.......... 42,455,550 46,644,846 50,425,004 52,454,263 55,012,725 52,788,825 55,544,438 Book value per share(2)....... 428.93 471.26 509.45 529.95 555.80 533.33 561.17 SELECTED OPERATING DATA: Number of stores at end of period...................... 6 6 6 8 7 7 7 Comparable store net revenue increases (decreases)....... 0.4% 5.0% 2.8% (6.5)% 2.9% 0.6% 4.2% </TABLE> - --------------- (1) Based on the weighted average number of shares of Common Stock outstanding for each period presented. (2) Based on the number of shares of Common Stock outstanding at the end of each period presented. 19 <PAGE> 2543 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the historical financial condition and results of operations of the Hudson-Belk Company for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 which should be read in conjunction with the historical financial statements, including the notes thereto, included elsewhere in this Proxy Statement/Prospectus. GENERAL Certain Components of Net Income. Revenues include sales from retail operations and leased departments. Cost of goods sold include cost of merchandise, buying, and occupancy expense. Selling, general, and administrative expense ("SG&A") includes payroll, advertising, credit, and depreciation expense. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship to revenues of certain items in the Hudson-Belk Company's statements of income and other pertinent financial data. <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995(A) 1996(A) 1997(A) 1996 1997 ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold.......................... 67.6 67.9 68.7 68.9 68.4 Selling, general and administrative expenses.................................. 25.5 27.2 25.8 27.4 26.5 Income from operations...................... 7.0 4.9 5.5 3.6 5.1 Interest expense, net....................... 0.8 0.8 0.9 0.9 0.7 Income taxes................................ 2.4 1.5 1.7 1.0 1.1 Net income.................................. 3.8 2.6 3.0 1.8 1.9 Comparable stores revenues increase (decrease)................................ 2.8 (6.5) 2.9 0.6 4.2 Number of stores Opened.................................... 1 2 0 0 0 Closed.................................... 1 0 0 0 0 Transferred to an affiliate............... 0 0 1 1 0 Total -- end of period...................... 6 8 7 7 7 </TABLE> - --------------- (a) The fiscal years ended February 1, 1997 and January 31, 1995 consisted of 52 weeks. The fiscal year ended February 3, 1996 consisted of 368 days. COMPARISON OF NINE MONTHS ENDED NOVEMBER 1, 1997 AND NOVEMBER 2, 1996 Revenues. The Hudson-Belk Company's revenues for the nine months ended November 1, 1997 increased 2.6% or $2.2 million compared to the same period in 1996 from $86.2 million to $88.4 million. The increase was primarily attributable to a large increase in revenues at the newly remodeled Raleigh, North Carolina Crabtree Mall store of $1.9 million. Cost of Goods Sold. As a percentage of revenues, cost of goods sold decreased from 68.9% for the nine months ended November 2, 1996 to 68.4% for the nine months ended November 1, 1997. Cost of merchandise decreases were experienced due to better inventory management and lower markdowns. Cost of goods sold increased 1.9%, or $1.1 million, from $59.4 million for the nine months ended November 2, 1996 to $60.5 million for the nine months ended November 1, 1997 primarily due to an increase in revenues. Selling, General, and Administrative Expenses. As a percentage of revenues, SG&A decreased from 27.4% for the nine months ended November 2, 1996 to 26.5% for the nine months ended November 1, 1997. SG&A decreased 1.0%, or $0.2 million, for the nine months ended ended November 1, 1997 as compared to 20 <PAGE> 2544 the nine months ended November 2, 1996. The Garner Outlet store, which was transferred to an affiliate, contributed $0.5 million in SG&A expense for the nine months ended November 2, 1996. Excluding the impact of the Garner Outlet, SG&A increased 1.3% or $0.3 million. The increase was attributable to increases in payroll and bad debt expense, net. These increases were partially offset by a decrease in depreciation expense. Interest Expense, Net. Interest expense, net decreased 15.4%, or $0.1 million, from $0.8 million for the nine months ended November 2, 1996 to $0.7 million for the nine months ended November 1, 1997. This decrease resulted from a decrease in average outstanding borrowings. Net Income. Net income increased $0.2 million to 1.9% of revenues for the nine months ended November 1, 1997 compared to 1.8% of revenues for the nine months ended November 2, 1996. The increase was attributable to a decrease in cost of goods sold and SG&A , as a percentage of revenues, of 0.5% and 0.9%, respectively, which was offset by a loss on investment of $1.3 million recognized during the nine months ended November 1, 1997. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 Revenues. The Hudson-Belk Company's revenues in fiscal year 1997 increased 0.8% or $1.1 million over fiscal year 1996 from $125.5 million to $126.6 million. On a comparable store basis, revenues increased 2.9% compared to the first 52 weeks of fiscal year 1996. The increase was slightly offset by a revenues decrease associated with the transfer of the net assets of the Garner Outlet Center in July, 1996 to an affiliated entity. Cost of Goods Sold. As a percentage of revenues, cost of goods sold increased from 67.9% in fiscal year 1996 to 68.7% in fiscal year 1997 primarily due to merchandise increases resulting from higher markdowns. Cost of goods sold increased 2.1%, or $1.8 million, from $85.2 million in fiscal year 1996 to $87.0 million in fiscal year 1997 primarily due to an increase in revenues, accompanied by high merchandise costs, resulting from markdowns, at the Durham, Northgate store. Selling, General, and Administrative Expenses. SG&A decreased from 27.2% of revenues in fiscal year 1996 to 25.8% of revenues in fiscal year 1997. Such decrease, which amounted to $1.5 million, was attributable primarily to decreases in non-selling payroll expense realized through efficiencies implemented in the retail department stores and advertising expense. Interest Expense, Net. Interest expense, net, remained constant at $1.0 million and $1.1 million in fiscal years 1996 and 1997, respectively. Net Income. Net income increased $0.5 million to 3.0% of revenues in fiscal year 1997 compared to 2.6% of revenues in fiscal year 1996. COMPARISON OF FISCAL YEARS ENDED FEBRUARY 3, 1996 AND JANUARY 31, 1995 Revenues. The Hudson-Belk Company's revenues decreased 1.9%, or $2.4 million, from $127.9 million in fiscal year 1995 to $125.5 million in fiscal year 1996. The decrease in revenues experienced in fiscal year 1996 was primarily due to the closing of the Raleigh Downtown store, which resulted in a revenue decrease of $6.5 million. This decrease was slightly offset by an increase in revenues at the new Durham, North Carolina Northgate Mall store. Adjusting for the impact of the additional days in fiscal year 1996, comparable stores revenues decreased 6.5% largely because of a decrease in revenues at the Durham South Square store, resulting from the opening of the Durham Northgate Mall store in the same market. Cost of Goods Sold. As a percentage of revenues, cost of goods sold increased from 67.6% in fiscal year 1995 to 67.9% in fiscal year 1996. Cost of goods sold decreased 1.4%, or $1.3 million, from $86.5 million in fiscal year 1995 to $85.2 million in fiscal year 1996 primarily due to a decrease in revenues. Selling, General, and Administrative Expenses. SG&A increased 4.7%, or $1.5 million, from 25.5% of revenues in fiscal year 1995 to 27.2% of revenues in fiscal year 1996. Such increase was primarily attributable to increases in advertising, depreciation, and credit expense. 21 <PAGE> 2545 Interest Expense, Net. Interest expense, net was $1.0 million and 0.8% of revenues in fiscal years 1995 and 1996. Net Income. Net income decreased $1.6 million to 2.6% of revenues in fiscal year 1996 compared to 3.8% of revenues in fiscal year 1995. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenues, operating income and net income. The highest revenue period for the Company is the fourth quarter which includes the Christmas selling season. A disproportionate amount of the Company's revenues and a substantial amount of the Company's operating and net income are realized during the fourth quarter. If for any reason the Company's revenues were below seasonal norms during the fourth quarter, the Company's annual results of operations could be adversely affected. The Company's inventory levels generally reach their highest in anticipation of increased revenues during these months. The following table illustrates the seasonality of revenues by quarter as a percentage of the full year for the fiscal years indicated. <TABLE> <CAPTION> 1995 1996 1997 ---- ---- ---- <S> <C> <C> <C> First quarter............................................... 22.4% 21.3% 22.9% Second quarter.............................................. 22.2 22.4 21.5 Third quarter............................................... 24.3 24.3 23.7 Fourth quarter.............................................. 31.1 32.0 31.9 </TABLE> The Company's quarterly results of operations could also fluctuate significantly as a result of a variety of factors, including the timing of new store openings and remodelings. LIQUIDITY AND CAPITAL RESOURCES The Company's primary source of liquidity are cash on hand, cash flow from operations, and borrowings under credit facilities. During the nine months ended November 1, 1997, net cash provided by operations was $19 thousand, compared to net cash used by operations of $2.4 million during the same period in 1996. Cash in the amount of $8.0 million and $6.9 million was used to invest in additional inventory during the nine months ended November 1, 1997 and November 2, 1996, respectively. During the nine months ended November 1, 1997 accounts receivable from customers decreased, providing cash for operations; however, during the nine months ended November 2, 1996 accounts receivable from customers increased significantly, resulting in an additional use of funds. In fiscal year 1997, the Hudson-Belk Company had sufficient cash flows from operations and credit facilities to fund its working capital needs and capital expenditures. Net cash provided by operations was $10.7 million, $1.0 million, and $5.2 million for the 1995, 1996, and 1997 fiscal years, respectively. The decrease in cash flow in fiscal year 1996 was primarily attributable to reduced net income and an additional investment in merchandise inventory as a result of a remodel and expansion of the Raleigh Crabtree store and the opening of the Durham Northgate store. The increase in cash flow in fiscal year 1997 is primarily attributable to an increase in net income and accounts payable to vendors. These increases were slightly offset by the 7.4% increase in accounts receivable from customers from February 3, 1996 to February 1, 1997 which resulted in a decrease in cash provided from operations of $1.9 million. The Hudson-Belk Company has promoted the Belk proprietary credit card through targeted marketing campaigns and active solicitation efforts on the store sales floor in order to attract additional Belk charge customers and increase sales to existing Belk charge customers. While these efforts have been successful in increasing Belk proprietary credit card sales volume significantly, cash provided from operations has been negatively impacted. Investing activities included capital expenditures, primarily for new, relocated and remodeled stores and sales of property and equipment related to store closings. Capital expenditures, primarily for new and 22 <PAGE> 2546 remodeled stores, amounted to $2.4 million in the first nine months of fiscal 1998 and $0.5 million in the comparable period in fiscal 1997. Capital expenditures amounted to $1.1 million, and $7.5 million, and $0.8 million for the 1995, 1996 and 1997 fiscal years, respectively. In fiscal year 1995, Raleigh Cameron Village opened; the Raleigh Downtown store and the Raleigh Budget store locations closed. In fiscal year 1996, two new stores were opened, the Garner Outlet Center and the Durham Northgate Mall store location adding 46,000 and 104,000 square feet, respectively. In addition, the Raleigh Crabtree store was remodeled. In fiscal year 1997, the Garner Outlet Center was transferred out of the Hudson-Belk Company to an affiliate. Management plans to relocate the Smithfield, North Carolina store in February, 1998 adding an additional 20,000 square feet. In addition, a new store in Garner, North Carolina is planned in August, 1998. Financing activities included payments or additional borrowings on credit facilities. The Hudson-Belk Company's total indebtedness at November 1, 1997 was $11.6 million, comprised of $8.5 million of current maturities of long-term debt and short-term borrowings and $3.0 million of long-term debt. Of the $11.6 million of total indebtedness, $4.6 million was variable rate debt based on LIBOR and $7.0 million was variable rate debt based on interest rates as quoted by the bank (which historically have been approximately 80 basis points above LIBOR). IMPACT OF INFLATION While it is difficult to determine the precise effects of inflation, management does not believe inflation had a material impact on the financial statements for the periods presented. BUSINESS OF THE COMPANY General. The Company operates six retail department stores in the following locations in North Carolina: Cary Towne Center in Cary, University Mall in Chapel Hill, South Square Plaza and Northgate Mall in Durham, Crabtree Valley Mall, and Centre Point Plaza in Smithfield. The Company also operates one 3,000 square foot Belk Express store at Cameron Village Shopping Center in Raleigh. The Company's stores operate in a manner consistent with the business of the Belk Companies described in the Proxy Statement/ Prospectus except that the Belk Express store carries a limited selection of cosmetics and hosiery and does not carry the full lines found in the traditional department stores. The stores are managed out of the Hudson group office, which the Company operates in a leased facility in Raleigh, North Carolina. The Hudson group office provides buying, advertising, accounting, purchasing and other services to stores in the Hudson group area. The Company also owns approximately 44 acres of land in Morrisville, North Carolina. The Company operates a distribution center on 15 of such acres and is holding the remaining 29 acres for future development. The Company uses the distribution center for receiving, marking and distributing merchandise to the stores in the Hudson group area. The Company also owns a building and parking lot in downtown Raleigh, North Carolina that is currently for sale. The Company plans to open a store containing approximately 46,000 square feet of floor area in Garner, North Carolina in 1998. The Company leases its group office facility at Kidd's Hill Plaza in Raleigh, North Carolina. The Company has a partnership interest in the Cary Venture Limited Partnership. The partnership was formed for the purpose of developing the Cary Village Shopping Center in Cary, North Carolina. Facilities. The Company operates six retail department stores and the Belk Express store, all of which are leased under long-term leases. The leases have termination dates ranging from 1998 through 2017, and for the lease terminating in 1998 the Company has options to extend the lease to 2013. The floor space of the leased stores (other than the Belk Express store) ranges from 46,000 to 240,000 square feet. The Company believes these facilities are adequate to meet its current needs. Competition. Specific competitors in the Company's market include Dillard, Hecht's, Sears, Penney and Lord & Taylor. 23 <PAGE> 2547 Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 24 <PAGE> 2548 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)(g)(h).................................. 34,428 34.8% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(d)(g)(h)(i)........................................... 25,331 25.6% H. W. McKay Belk (Director and Executive Officer) (b)(d)(g)(h)(i)........................................... 24,182 24.4% John R. Belk (Director and Executive Officer) (b)(d)(g)(h)(k)........................................... 24,442 24.7% Henderson Belk (Director) (e)(f)............................ 4,653 4.7% Sarah Belk Gambrell (e)(f).................................. 9,604 9.7% David Belk Cannon (Director) (m)............................ 4,761 4.8% James K. Glenn, Jr. (Director) (l).......................... 3,933 4.0% Daisy D. Lange (Director) (o)............................... 3,060 3.1% Karl G. Hudson, Jr. (Director).............................. 50 * Karl G. Hudson, III (Director and Executive Officer)........ 1,097 1.1% Suzanne Hudson MacLeod (Director)........................... 2,184 2.2% Fred B. Leggett, Jr. (Director) (p)(q)...................... 3,330 3.4% Thomas C. Leggett (Director)................................ 459 4.6% Leroy Robinson (Director) (b)(d)............................ 1,558 1.6% Richard Hudson (Executive Officer).......................... 1,097 1.1% Caesar Lamonica (Executive Officer)......................... 0 * Martin Todd (Executive Officer)............................. 0 * Belk Enterprises, Inc. ..................................... 11,653 11.8% J.V. Properties............................................. 9,754 9.9% NationsBank, N.A. .......................................... 6,023 6.1% All Directors and Executive Officers as a group (14 persons).................................................. 58,498 59.1% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P. O. Box 2736, Winston-Salem, N.C. 27102; Daisy D. Lange -- 7 Brickwall Lane, Ruislip, Middlesex, England HA48JS; Karl G. Hudson, Jr. -- 319 First Federal Building, Raleigh, N.C.; Karl G. Hudson, III, Caesar Lamonica and Martin Todd -- Hudson-Belk Group Office, 319 Fayetteville Street, Raleigh, N.C. 27601; Richard W. Hudson -- 4325 Glenwood Avenue, Raleigh, N.C. 27612; Suzanne Hudson MacLeod -- P. O. Box 692, Lumberton, N.C. 28359; Fred B. Leggett, Jr. -- 1041 Willow Trail, Sutherlin, Va. 24594; Thomas C. Leggett -- P. O. Box 59, South Boston, Va. 24592; Belk Enterprises, Inc. and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28207; NationsBank, N.A. -- Sara McDonald, NationsBank, N.A., Charlotte, N.C. 28255. 25 <PAGE> 2549 All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 3,231 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 1,556 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Represented by 13 shares held by Claudia W. Belk, Tr. U/A f/b/o Mary Claudia Belk and 741 shares held by Mary Claudia Belk Irrevocable Trust dated 1/4/94. Claudia W. Belk, Trustee, is John M. Belk's wife. (d) Includes 2 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (e) Includes 3,200 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (f) Includes 1,337 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (g) Includes 697 shares of Belk of Orangeburg, S.C., Inc., 20 shares held by Hudson-Belk Co. of Fuquay-Varina, N.C., Inc., 11,653 shares of Belk Enterprises, Inc. and 133 shares held by Matthews-Belk Company, which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under the authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (h) Includes 9,754 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (i) Includes 25 shares held by Thomas M. Belk, Jr. as custodian for his minor children and 1,192 shares held as custodian for the minor children of his brother, H. W. McKay Belk. (j) Includes 5 shares held by H. W. McKay Belk as custodian for his minor children. (k) Includes 519 shares held by John R. Belk as custodian for his minor children. (l) Includes 1,357 shares held by James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox, 650 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al. and 1,301 shares held by John Belk Stevens Trust U/W ITEM III, Section B f/b/o Mary S. Whelchel. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (m) Includes 927 shares held by Residuary Trust U/W Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (n) Includes 1,387 shares held by NationsBank as Trustee for the Daisy Belk Doughton Lange Revocable Trust dated 3/25/97, 92 shares held by Nations Bank as Trustee for the Robert L. Doughton II Revocable Trust dated 3/25/97, 1,330 shares held by Sara Dew Misner and North Carolina National Bank, Co-Trustees for Daisy Doughton Lange U/A dated November 5, 1965 and 1,541 shares held by J. L. Green, Jr. and N.C. Nat'l Bank, Trustees U/A 7/9/65 -- Sadie Belk Cummings, Grantor. NationsBank has sole voting and investment power with respect to such shares. 26 <PAGE> 2550 (o) Includes 1,673 shares held by Daisy Doughton Lange and North Carolina National Bank, Trustees for Robert L. Doughton, II under Agreement dated July 21, 1965. The named Trustees have voting and investment power with respect to such shares. (p) Includes 199 shares held by Fred B. Leggett, Jr., Trustee for Suzanne Holland Leggett. Fred B. Leggett, Jr., the Trustee, has voting and investment power with respect to such shares. (q) Includes 1,835 shares of Suzanne Holland Leggett and Fred B. Leggett, Jr., Trustees under the will of F. B. Leggett, Deceased f/b/o Suzanne H. Leggett. The Trustees named have sole voting and investing power with respect to such shares. 27 <PAGE> 2551 INDEX TO HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Report of KPMG Peat Marwick LLP, Independent Auditors....... F-2 Balance Sheets.............................................. F-3 Statements of Income........................................ F-4 Statements of Shareholders' Equity.......................... F-5 Statements of Cash Flows.................................... F-6 Notes to Financial Statements............................... F-7 </TABLE> F-1 <PAGE> 2552 INDEPENDENT AUDITORS' REPORT The Board of Directors of Hudson-Belk Company: We have audited the accompanying balance sheet of Hudson-Belk Company as of February 1, 1997, and the related statements of income, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hudson-Belk Company at February 1, 1997, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Charlotte, North Carolina November 14, 1997 F-2 <PAGE> 2553 HUDSON-BELK COMPANY BALANCE SHEETS <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents............................. $ 2,749,663 $ 2,554,578 $ 2,407,049 Accounts receivable, net.............................. 19,766,701 21,232,909 20,946,860 Merchandise inventory................................. 27,504,793 26,970,504 34,944,598 Prepaid income taxes.................................. 374,584 85,696 837,906 Receivables from affiliates........................... 340,410 854,585 343,557 Deferred income taxes................................. 652,558 560,190 644,638 Prepaid expenses and other current assets............. 1,319,577 1,152,392 600,067 ----------- ----------- ----------- Total current assets.................................... 52,708,286 53,410,854 60,724,675 Investments............................................. 446,782 2,459,348 1,285,682 Property and equipment, net............................. 25,026,192 22,708,809 23,191,270 Other assets............................................ 624,767 268,090 717,035 ----------- ----------- ----------- Total assets............................................ $78,806,027 $78,847,101 $85,918,662 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Line of credit........................................ $ 4,300,000 $ 3,250,000 $ 7,000,000 Accounts payable...................................... 7,465,829 8,079,916 10,232,664 Accrued expenses...................................... 3,416,440 2,862,737 3,640,134 Payables to affiliates................................ 570,933 847,538 581,401 Current installments of long-term debt................ 2,300,004 191,667 1,513,981 ----------- ----------- ----------- Total current liabilities............................... 18,053,206 15,231,858 22,968,180 Deferred income taxes................................... 1,329,098 1,565,135 1,801,087 Long-term debt, excluding current installments.......... 4,753,252 4,561,585 3,047,604 Deferred compensation................................... 1,885,297 2,039,413 2,046,638 Other non-current liabilities........................... 330,911 436,385 510,715 ----------- ----------- ----------- Total liabilities....................................... 26,351,764 23,834,376 30,374,224 ----------- ----------- ----------- Shareholders' equity: Common stock; $100 par value; authorized 100,000 shares; issued and outstanding 98,980 shares....... 9,898,000 9,898,000 9,898,000 Retained earnings..................................... 42,556,263 45,114,725 45,646,438 ----------- ----------- ----------- Total shareholders' equity.............................. 52,454,263 55,012,725 55,544,438 ----------- ----------- ----------- Total liabilities and shareholders' equity.............. $78,806,027 $78,847,101 $85,918,662 =========== =========== =========== </TABLE> See accompanying notes to financial statements. F-3 <PAGE> 2554 HUDSON-BELK COMPANY STATEMENTS OF INCOME <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED ------------------------------------------ ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ------------ ------------ ------------ ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Revenues..................... $127,943,752 $125,517,063 $126,554,654 $86,172,090 $88,428,807 Cost of goods sold (including occupancy and buying expenses).................. 86,467,184 85,238,903 86,988,508 59,406,094 60,528,460 Selling, general and administrative expenses.... 32,570,833 34,108,526 32,610,903 23,625,617 23,398,666 ------------ ------------ ------------ ----------- ----------- Income from operations....... 8,905,735 6,169,634 6,955,243 3,140,379 4,501,681 Interest expense, net........ (981,890) (982,439) (1,104,557) (779,157) (659,368) Loss on investment........... -- -- -- -- (1,265,177) Other income (expense), net........................ (4,752) (59,484) 70,607 45,100 148,337 ------------ ------------ ------------ ----------- ----------- Income before income taxes... 7,919,093 5,127,711 5,921,293 2,406,322 2,725,473 Income taxes................. 3,052,619 1,908,227 2,175,071 884,000 1,006,000 ------------ ------------ ------------ ----------- ----------- Net income................... $ 4,866,474 $ 3,219,484 $ 3,746,222 $ 1,522,322 $ 1,719,473 ============ ============ ============ =========== =========== Earnings per share........... $ 49.17 $ 32.53 $ 37.85 $ 15.38 $ 17.37 ============ ============ ============ =========== =========== Weighted average shares...... 98,980 98,980 98,980 98,980 98,980 ============ ============ ============ =========== =========== </TABLE> See accompanying notes to financial statements. F-4 <PAGE> 2555 HUDSON-BELK COMPANY STATEMENT OF SHAREHOLDERS' EQUITY <TABLE> <CAPTION> NET UNREALIZED COMMON RETAINED GAINS (LOSSES) STOCK EARNINGS ON INVESTMENTS TOTAL ---------- ----------- -------------- ----------- <S> <C> <C> <C> <C> Balance at February 1, 1994 (unaudited)...... $9,898,000 $36,746,845 $ -- $46,644,845 Unrealized gains on investments, net of income taxes (unaudited)................... -- -- 2,465 2,465 Cash dividends (unaudited)................... -- (1,088,780) -- (1,088,780) Net income (unaudited)....................... -- 4,866,474 -- 4,866,474 ---------- ----------- ------- ----------- Balance at January 31, 1995 (unaudited)...... 9,898,000 40,524,539 2,465 50,425,004 Reduction in unrealized gains on investments, net of income taxes (unaudited)............ -- -- (2,465) (2,465) Cash dividends (unaudited)................... -- (1,187,760) -- (1,187,760) Net income (unaudited)....................... -- 3,219,484 -- 3,219,484 ---------- ----------- ------- ----------- Balance at February 3, 1996.................. 9,898,000 42,556,263 -- 52,454,263 Cash dividends............................... -- (1,187,760) -- (1,187,760) Net income................................... -- 3,746,222 -- 3,746,222 ---------- ----------- ------- ----------- Balance at February 1, 1997.................. 9,898,000 45,114,725 -- 55,012,725 Cash dividends............................... -- (1,187,760) -- (1,187,760) Net income................................... -- 1,719,473 -- 1,719,473 ---------- ----------- ------- ----------- Balance at November 1, 1997 (unaudited)...... $9,898,000 $45,646,438 $ -- $55,544,438 ========== =========== ======= =========== </TABLE> See accompanying notes to financial statements. F-5 <PAGE> 2556 HUDSON-BELK COMPANY STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED ---------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ------------ ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Cash flows from operating activities: Net income............................. $ 4,866,474 $ 3,219,484 $ 3,746,222 $ 1,522,322 $ 1,719,473 Adjustments to reconcile net income to net cash provided (used) by operating activities: Deferred income taxes.................. (157,596) 158,563 328,405 74,604 151,504 Depreciation and amortization.......... 2,824,673 3,112,952 2,805,724 2,145,274 1,963,414 Gain on sale of property and equipment............................ (1,136) (2,601) (13,762) -- -- Loss on sale of investments............ 21,095 -- -- -- -- Loss on investment..................... -- -- -- -- 1,265,177 (Increase) decrease in: Accounts receivable, net............. 900,731 53,445 (1,919,208) (872,962) 286,049 Merchandise inventory................ 2,216,506 (4,236,991) 44,581 (6,912,074) (7,974,094) Receivables from affiliates.......... 482,501 549,226 (1,335,423) 68,854 511,028 Prepaid income taxes................. -- (374,584) 288,888 (201,358) (752,210) Prepaid expenses and other assets.... (347,331) 267,646 503,567 503,606 103,380 Increase (decrease) in: Accounts payable and accrued expenses........................... (64,859) (1,312,959) 250,345 1,843,756 2,930,145 Payables to affiliates............... 157,486 44,645 276,605 (679,295) (266,137) Accrued income taxes................. (427,285) (789,180) -- -- -- Deferred compensation and other liabilities........................ 184,287 345,393 261,292 147,444 81,555 ----------- ----------- ------------ ----------- ----------- Net cash provided (used) by operating activities............................. 10,655,546 1,035,039 5,237,236 (2,359,829) 19,284 ----------- ----------- ------------ ----------- ----------- Cash flows from investing activities: Purchase of investments................ -- -- (83,859) (29,158) (91,511) Purchases of property and equipment.... (1,128,516) (7,513,290) (830,373) (527,009) (2,445,875) Proceeds from sale of property and equipment............................ 1,698 3,380 19,675 -- -- Proceeds from sale of investments...... 116,138 -- -- -- -- ----------- ----------- ------------ ----------- ----------- Net cash used by investing activities.... (1,010,680) (7,509,910) (894,557) (556,167) (2,537,386) ----------- ----------- ------------ ----------- ----------- Cash flows from financing activities: Proceeds from (payments on) line of credit, net.......................... -- 4,300,000 (1,050,000) 5,200,000 3,750,000 Principal payments on long-term debt... (5,320,121) (6,348,359) (2,300,004) (1,725,003) (191,667) Dividends paid......................... (1,088,780) (1,187,760) (1,187,760) (1,187,760) (1,187,760) ----------- ----------- ------------ ----------- ----------- Net cash provided (used) by financing activities............................. (6,408,901) (3,236,119) (4,537,764) 2,287,237 2,370,573 ----------- ----------- ------------ ----------- ----------- Net increase (decrease) in cash and cash equivalents............................ 3,235,965 (9,710,990) (195,085) (628,759) (147,529) Cash and cash equivalents at beginning of period................................. 9,224,688 12,460,653 2,749,663 2,749,663 2,554,578 ----------- ----------- ------------ ----------- ----------- Cash and cash equivalents at end of period................................. $12,460,653 $ 2,749,663 $ 2,554,578 $ 2,120,904 $ 2,407,049 =========== =========== ============ =========== =========== Supplemental disclosures of cash flow information: Interest paid........................ $ 1,008,128 $ 1,110,135 $ 1,122,426 $ 619,395 $ 504,117 Income taxes paid.................... 2,258,900 2,079,200 2,008,600 894,300 1,954,264 </TABLE> See accompanying notes to financial statements. F-6 <PAGE> 2557 HUDSON-BELK COMPANY NOTES TO FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES COMPANY OPERATIONS Hudson-Belk Company (the Company) operates retail department stores in North Carolina. FISCAL YEAR Starting in fiscal year 1996, the Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1996 and 1997 ended on February 3, 1996 and February 1, 1997 and included 368 and 365 days, respectively. Fiscal year 1995 ended on Tuesday, January 31, 1995 and included 364 days. UNAUDITED FINANCIAL STATEMENTS The financial statements as of February 3, 1996 and for the years ended January 31, 1995 and February 3, 1996 and as of and for the periods ended November 2, 1996 and November 1, 1997 are unaudited. In the opinion of management, such financial statements reflect all adjustments necessary to present fairly the Company's financial position and results of operations and cash flows, but the consolidated financial statements for the interim periods ended November 2, 1996 and November 1, 1997 are not necessarily indicative of the results of operations for a full fiscal year. REVENUES Revenues include sales from retail operations and leased departments, net of returns. COST OF GOODS SOLD Cost of goods sold includes occupancy and buying expenses. Occupancy expenses so classified are rent, utilities and real estate taxes. Buying expenses include payroll and travel expenses associated with the buying function. MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market as determined by the retail inventory method. FINANCE CHARGES Selling, general and administrative expenses in the statements of income are reduced by finance charge revenue arising from customer accounts receivable. Finance charge revenue amounted to approximately $2,428,000, $2,204,000 and $2,328,000 in fiscal years 1995, 1996 and 1997, respectively. PROPERTY AND EQUIPMENT, NET Property and equipment owned by the Company is stated at cost less accumulated depreciation. Depreciation and amortization is provided utilizing straight-line and various accelerated methods over the shorter of estimated asset lives or related lease terms. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement bases and the respective tax bases of the assets and liabilities and operating loss and tax credit F-7 <PAGE> 2558 HUDSON-BELK COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. PRE-OPENING COSTS Store pre-opening costs are expensed as incurred. CASH EQUIVALENTS Cash equivalents include liquid investments with an original maturity of 90 days or less. ADVERTISING Advertising costs are expensed as incurred and amounted to $3,548,023, $4,334,218 and $4,102,977 in fiscal years 1995, 1996 and 1997, respectively. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) ACCOUNTS RECEIVABLE, NET Customer receivables arise primarily under open-end revolving credit accounts used to finance purchases of merchandise from the Company. These accounts have various billing and payment structures, including varying minimum payment levels and finance charges rates. Installments of deferred payment accounts receivable maturing after one year are included in current assets in accordance with industry practice. The Company provides an allowance for doubtful accounts which is determined based on a number of factors, including the risk characteristics of the portfolio, historical charge-off patterns, and management judgment. Accounts receivable, net consists of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Customer receivables............................ $19,654,936 $20,944,822 $21,114,836 Other........................................... 387,989 602,694 204,777 Less allowance for doubtful accounts............ (276,224) (314,607) (372,753) ----------- ----------- ----------- Accounts receivable, net........................ $19,766,701 $21,232,909 $20,946,860 =========== =========== =========== </TABLE> F-8 <PAGE> 2559 HUDSON-BELK COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Changes in allowance for doubtful accounts are as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED NINE MONTHS ENDED --------------------------------------- ------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, NOVEMBER 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> <C> Balance, beginning of period...................... $ 289,135 $ 269,830 $ 276,224 $ 276,224 $ 314,607 Charged to expense............ 293,741 291,778 492,573 302,952 466,599 Net uncollectible balances written off................. (313,046) (285,384) (454,190) (308,917) (408,453) --------- --------- --------- --------- --------- Balance, end of period........ $ 269,830 $ 276,224 $ 314,607 $ 270,259 $ 372,753 ========= ========= ========= ========= ========= </TABLE> (3) INVESTMENTS In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Investments in Debt and Equity Securities," the Company classifies all equity securities with a readily determinable market value as available-for-sale securities. Gains and losses on sales of securities are recognized when realized on a specific identification basis. Gross realized loss included in income in 1995 was $21,095. The Company owns 12.1% of TAGS Stores, LLC (TAGS) and, accordingly, accounts for its investment in TAGS on a cost basis. In September 1997, the managers and advisory board of TAGS adopted a formal plan to liquidate its operations during the 1997 Christmas retailing season. During the nine months ended November 1997, the Company reduced its investment in TAGS by $1,265,177, to the estimated net realizable value of its investment. (4) PROPERTY AND EQUIPMENT, NET Details of property and equipment are as follows: <TABLE> <CAPTION> ESTIMATED FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, LIVES 1996 1997 1997 --------- ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> Land................................ N/A $ 2,239,982 $ 2,239,982 $ 2,239,982 Buildings........................... 30-50 24,277,090 24,142,733 24,577,346 Furniture, fixtures and equipment... 5-7 23,351,938 23,688,766 24,882,703 Construction in progress............ N/A 164,617 330,164 1,107,464 ------------ ------------ ------------ 50,033,627 50,401,645 52,807,495 Less accumulated depreciation....... (25,007,435) (27,692,836) (29,616,225) ------------ ------------ ------------ Property and equipment, net......... $ 25,026,192 $ 22,708,809 $ 23,191,270 ============ ============ ============ </TABLE> F-9 <PAGE> 2560 HUDSON-BELK COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (5) ACCRUED EXPENSES Accrued expenses are comprised of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Salaries, wages and employee benefits.............. $1,375,078 $1,201,477 $1,319,233 Rent............................................... 1,254,682 977,560 919,773 Taxes, other than income........................... 320,874 205,411 497,512 Interest........................................... 130,916 125,837 283,408 Other.............................................. 334,890 352,452 620,208 ---------- ---------- ---------- $3,416,440 $2,862,737 $3,640,134 ========== ========== ========== </TABLE> (6) BORROWINGS Long-term debt consists of the following: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, NOVEMBER 1, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Unsecured term loan agreement, due 1999; interest at LIBOR (5.65% at November 1, 1997) plus 80 basis points................................... $ 7,053,256 $4,753,252 $ 4,561,585 Less current installments........................ (2,300,004) (191,667) (1,513,981) ----------- ---------- ----------- Long-term debt, excluding current installments... $ 4,753,252 $4,561,585 $ 3,047,604 =========== ========== =========== </TABLE> The annual maturities of long-term debt over the next three years as of February 1, 1997 are $191,667, $2,162,830 and $2,398,755. Subsequent to February 1, 1997 the payment terms of the term loan agreement were restructured. The Company's term loan agreement contains, among other provisions and covenants, restrictions relating to the creation of additional funded debt, except as permitted, and the disposal, expansion or purchase of fixed assets, except as permitted. In addition, the Company must maintain at the end of any fiscal year a minimum net working capital, as defined and a minimum tangible net worth, as defined. The Company must also maintain a maximum ratio of total liabilities to tangible net worth, as defined. The Company was in compliance with the provisions and covenants of the term loan agreement as of February 1, 1997. The covenants also include a restriction on dividend payments. The Company can only declare dividends from net cash flow. At February 1, 1997 the Company had $38,562,779 of retained earnings unavailable for dividend payments. At February 1, 1997, the Company has a $10,000,000 unsecured line of credit agreement at interest rates quoted by the banks (which historically have been approximately 80 basis points above LIBOR.) The amounts outstanding at February 3, 1996, February 1, 1997 and November 1, 1997 were $4,300,000, $3,250,000, and $7,000,000, respectively. (7) LEASES The Company leases certain of its stores, warehouse facilities and equipment. The majority of these leases will expire over the next 20 years. The leases usually contain renewal options and provide for payment by the lessee of real estate taxes and other expenses and, in certain instances, increased rentals based on percentages of sales. F-10 <PAGE> 2561 HUDSON-BELK COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Future minimum lease payments under noncancelable leases as of February 1, 1997 were as follows: <TABLE> <CAPTION> FISCAL YEAR OPERATING - ----------- ---------- <S> <C> 1998........................................................ $ 670,334 1999........................................................ 670,334 2000........................................................ 554,635 2001........................................................ 388,000 2002........................................................ 388,000 After 2002.................................................. 1,474,000 ---------- Total............................................. $4,145,303 ========== </TABLE> Rental expense for all operating leases consists of the following: <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Buildings: Minimum rentals.................................. $ 958,998 $1,552,519 $1,406,585 Contingent rentals............................... 1,361,446 1,274,686 1,308,477 Equipment.......................................... 81,031 83,529 80,372 ---------- ---------- ---------- Total rental expense..................... $2,401,475 $2,910,734 $2,795,434 ========== ========== ========== </TABLE> Contingent rentals are determined on the basis of a percentage of sales in excess of stipulated minimums for certain store facilities. (8) INCOME TAXES Federal and state income tax expense (benefit) is as follows: <TABLE> <CAPTION> NINE MONTHS ENDED FISCAL YEAR ENDED ------------------------- --------------------------------------- NOVEMBER JANUARY 31, FEBRUARY 3, FEBRUARY 1, 2, NOVEMBER 1, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED)(UNAUDITED) <S> <C> <C> <C> <C> <C> Current: Federal.................... $2,566,598 $1,303,964 $1,475,847 $650,757 $ 690,000 State...................... 643,617 445,700 370,819 158,639 164,496 ---------- ---------- ---------- -------- ---------- 3,210,215 1,749,664 1,846,666 809,396 854,496 Deferred: Federal.................... (125,361) 128,066 263,337 63,576 122,703 State...................... (32,235) 30,497 65,068 11,028 28,801 ---------- ---------- ---------- -------- ---------- (157,596) 158,563 328,405 74,604 151,504 ---------- ---------- ---------- -------- ---------- Income taxes................. $3,052,619 $1,908,227 $2,175,071 $884,000 $1,006,000 ========== ========== ========== ======== ========== </TABLE> F-11 <PAGE> 2562 HUDSON-BELK COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation between income taxes computed using the effective income tax rate and the federal statutory income tax rate of 34% is as follows: <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> Income tax at the statutory federal rate........... $2,692,492 $1,743,422 $2,013,240 State income taxes, net of federal income tax benefit.......................................... 403,512 314,290 287,685 Other.............................................. (43,385) (149,485) (125,854) ---------- ---------- ---------- Income taxes....................................... $3,052,619 $1,908,227 $2,175,071 ========== ========== ========== </TABLE> Deferred taxes based upon differences between the financial statement and tax bases of assets and liabilities and available tax carryforwards consists of: <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- (UNAUDITED) <S> <C> <C> Deferred tax assets: Benefit plan costs........................................ $ 821,318 $ 922,873 Inventory capitalization.................................. 544,512 541,446 Allowance for doubtful accounts........................... 108,045 123,059 ---------- ----------- Gross deferred tax assets................................... 1,473,875 1,587,378 ---------- ----------- Deferred tax liabilities: Property and equipment.................................... 1,416,315 1,597,448 Investments............................................... 577,150 694,965 Prepaid pension costs..................................... 156,950 121,214 Other..................................................... -- 178,696 ---------- ----------- Gross deferred tax liabilities.............................. 2,150,415 2,592,323 ---------- ----------- Net deferred tax liabilities................................ $ (676,540) $(1,004,945) ========== =========== </TABLE> In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the temporary differences becoming deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future income, and tax planning strategies in making this assessment. (9) BENEFIT PLANS The Company participates in the Belk Pension Plan, a defined benefit multi-employer plan, that covers substantially all of the employees of the Belk companies. Pension expense allocated to the Company was $182,820, $133,102 and $93,031 for fiscal years 1995, 1996 and 1997, respectively. Because the Belk Pension Plan is a multi-employer plan, allocation of plan assets to the Company is not practical. The Company also participates in the Belk Employee's Group Medical Plan, that provides medical benefits to substantially all employees of the Belk companies. This Plan is "self-funded" for medical benefits through a 501(c) (9) Trust. The Company participates in the Group Life Insurance Plan that provides life insurance to its employees, and is fully insured through a contract issued by an insurance company. Contributions by the Company under the Belk Employees' Group Medical Plan and the Group Life Insurance Plan amounted to approximately $664,000, $756,000, and $816,000 in fiscal years 1995, 1996 and 1997, respectively. F-12 <PAGE> 2563 HUDSON-BELK COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Company participates in the Belk Profit Sharing Pan, a contributory, defined contribution multi-employer plan that provides benefits for substantially all employees of the Belk companies. The costs of the plan generally represents 10% of profits, as defined, and amounted to $928,533, $612,515 and $687,255 in fiscal years 1995, 1996 and 1997, respectively. The Company participates in the Supplemental Executive Retirement Plan (SERP) a non-qualified defined benefit retirement plan that provides retirement and death benefits to certain qualified executives of the Company. Total SERP costs charged to operations were $108,112, $126,650 and $128,633, in fiscal years 1995, 1996 and 1997, respectively. The effective discount rate used in determining the net periodic SERP cost was 8.5% for fiscal years 1995 and 1996 and 7.25% for fiscal year 1997. Actuarial gains and losses are amortized over the average remaining service lives of the participants. Certain eligible employees also participate in a non-qualified Deferred Compensation Plan (DCP). Participants in the plan have elected to defer a portion of their regular compensation subject to certain limitations prescribed by the DCP. The Company is required to pay interest on the employees' deferred compensation at various rates between 9% and 15%. Total interest expense related to this plan and charged to operations was $122,141, $132,737 and $135,672, in fiscal years 1995, 1996 and 1997, respectively. The Company provides postretirement benefits to certain retired employees in the form of medical and life insurance premiums. The Company recorded approximately $55,000, $93,000 and $107,000 as selling, general and administrative expense in fiscal years 1995, 1996 and 1997, respectively. (10) RELATED PARTY TRANSACTIONS The Belk Center, Inc. services the Company's accounts receivable. The Company paid The Belk Center, Inc. approximately $1,267,000, $1,357,000 and $1,370,000 during 1995, 1996 and 1997, respectively, for these services. Various other selling, general, administrative and transaction processing services are provided by Belk Stores Services, Inc. ("BSS"). The Company paid BSS approximately $2,417,000, $2,533,000 and $2,362,000 during 1995, 1996 and 1997, respectively, for these services, not including the transaction processing services. The Company paid approximately $1,435,000, $1,383,000 and $1,441,000 during 1995, 1996 and 1997, respectively, for transaction processing fees. The Company may participate in operational, inverting and financing activities with affiliated Companies, which are defined as any companies in the Belk group of corporations. The Company may participate in operational, investing and financing activities with other Belk companies. (11) FAIR VALUE OF FINANCIAL INSTRUMENTS For financial instruments which are short-term in nature, such as cash and cash equivalents, accounts receivable, receivables from affiliates, accounts payable, payables to affiliates, accrued expenses and line of credit, carrying values approximates fair value. The carrying value of the Company's variable rate long-term debt is a reasonable estimate of fair value. F-13 <PAGE> 2564 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATIONS ACT STATE OF NORTH CAROLINA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2565 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2566 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2567 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2568 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2569 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2570 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ------------ ---------- ---------- ---------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................ $126,554,654 $3,746,222 $7,025,850 $9,831,574 $55,012,725 Adjustments to eliminate less than wholly-owned subsidiaries................ -- -- -- -- -- Less: Leased sales......................... 2,342,678 -- -- -- -- ------------ ---------- ---------- ---------- ----------- Adjusted Shareholders' Statement........... $124,211,976 3,746,222 7,025,850 9,831,574 55,012,725 ============ ---------- ---------- ---------- ----------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............ (8,707) (13,762) (13,762) Gain/loss on sale of securities.......... -- -- -- Impairment loss.......................... -- -- -- Equity in earnings of unconsolidated subsidiaries........................... -- -- -- Gain/loss on discontinued operations..... -- -- -- Adjustment to tax expense................ -- -- -- ---------- ---------- ---------- Total non-operating items.................. (8,707) (13,762) (13,762) ---------- ---------- ---------- Other Adjustments: Adjustment for dividends received from other Belk entities.................... (616) (974) (974) -- Adjustment for ownership in other Belk entities............................... -- -- -- (2,428,069) ---------- ---------- ---------- ----------- Per Model.................................. $3,736,899 $7,011,114 $9,816,838 $52,584,656 ========== ========== ========== =========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................ $ (2,554,578) Negative cash balances reclassified to accounts payable..................... -- Receivables from affiliates, net....... (7,047) Loans receivable from affiliates, net.................................. (41,036) Liabilities Line of credit......................... 3,250,000 Current installments of long-term debt................................. 191,667 Current portion of obligations under capital leases....................... -- Payables to affiliates, net............ -- Long-term debt, excluding current installments......................... 4,561,585 Obligations under capital leases, excluding current portion............ -- Loans payable to affiliates, net....... -- ------------ Net debt (cash)............................ 5,400,591 Adjustments to eliminate less than wholly-owned subsidiaries................ -- ------------ Per Model.................................. $ 5,400,591 ============ </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2571 SUPPLEMENT NO. 61 <PAGE> 2572 HUDSON-BELK COMPANY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 61 <PAGE> 2573 BELK DEPARTMENT STORE OF REIDSVILLE, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Department Store of Reidsville, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 81.9799 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 78,619 shares of New Belk Class A Common Stock which will represent approximately 0.1310% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2574 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2575 BELK DEPARTMENT STORE OF REIDSVILLE, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK DEPARTMENT STORE OF REIDSVILLE, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Department Store of Reidsville, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 81.9799 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2576 BELK DEPARTMENT STORE OF REIDSVILLE, N.C., INC. SUPPLEMENT NO. 62 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 62 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK DEPARTMENT STORE OF REIDSVILLE, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 2577 THE COMPANY The Company was incorporated as a North Carolina corporation in 1922. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 81.9799 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common 2 <PAGE> 2578 Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. In addition, the Reorganization is expected to have certain other benefits for the Company and the Shareholders, including the ability to share the risk associated with the uncertain prospects for the Company's store in its current location. The store is located in a relatively small market that is also close to larger markets with larger Belk stores and other competitors. The prospects for growth of the Company's store may be limited because of the size of its market and its close proximity to such competition. The Merger would allow the Company to share with New Belk the risk associated with the Company's current market and participate in the growth of other Belk stores located in markets with better growth prospects. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. 3 <PAGE> 2579 Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 2,000 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New 4 <PAGE> 2580 Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a 5 <PAGE> 2581 quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors, and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a 6 <PAGE> 2582 meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provides otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. 7 <PAGE> 2583 The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove 8 <PAGE> 2584 him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct 9 <PAGE> 2585 in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage 10 <PAGE> 2586 of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. 11 <PAGE> 2587 With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (ii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. 12 <PAGE> 2588 Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. 13 <PAGE> 2589 A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. 14 <PAGE> 2590 Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- --------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales.................... $2,824,091 $2,824,091 0.6 $(324,109) $2,018,564 EBITDA....................... 186,402 183,964 7 (324,109) 1,611,857 EBIT......................... 154,699 152,261 10 (324,109) 1,846,719 Net Income................... 109,098 107,435 15 -- 1,611,525 Book Equity.................. 1,260,722 1,256,271 1 -- 1,256,271 </TABLE> 15 <PAGE> 2591 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk-Beck Co., of High Point, N.C., Inc. .0904% X $ 6,270,761 = $ 5,669 ----------- Total $ 5,669 =========== Relative Operating Value of Company $ 2,018,564 Relative Operating Value of Other Companies Owned by Company + 5,669 ----------- Total Relative Value of Company = $ 2,024,233 =========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 12.8705% X $ 2,024,233 = $ 260,529 Belk Enterprises, Inc. 4.8362% X 2,024,233 = 97,896 Belk-Beck Company of Burlington, North Carolina, Inc. 7.4883% X 2,024,233 = 151,581 ----------- Total $ 510,006 =========== Total Relative Value of Company $ 2,024,233 Total Relative Value of Company Owned by Other Belk Companies -- 510,006 ----------- Net Relative Value of Company = $ 1,514,227 =========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $1,514,227 / $1,155,623,145 = .1310% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.1310% X 60,000,007) / 959 = 81.9799 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 2592 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 85.10 Book value per share(2)................................... 983.40 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 77.81 Book value per share...................................... 1,038.02 </TABLE> - --------------- (1) Based on 1,282 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 1,282 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 2593 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 3,242 $ 3,055 $ 2,824 Net income.................................................. 132 103 109 Per common share Net income (loss)(1)...................................... 102.66 80.57 85.10 Dividends................................................. 20.09 20.00 20.00 Book value(2)............................................. 857.73 918.30 983.40 Total assets................................................ 1,307 1,413 1,510 Shareholders' equity........................................ 1,100 1,177 1,261 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $1,994 $1,880 Income from operations...................................... 63 96 </TABLE> - --------------- (1) Based on 1,285, 1,282 and 1,282 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997, respectively. (2) Based on 1,282, shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 2594 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Comparable store sales decreased in fiscal year 1996 as a result of the announcement of the closing of American Tobacco Company, the largest employer in the city, to take place over a two year period. The sales trend decline continued into fiscal year 1997 due to reduced customer traffic and increase in vacancies at the mall location. Comparable store sales have decreased for the nine months ended November 1, 1997 due to the construction of a new shopping center on the major thoroughfare in the city. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Pennrose Plaza in Reidsville, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Huffstetler group office in Greensboro, North Carolina. Facilities. The Company leases its store building, which contains approximately 33,000 square feet of floor area. The current term of the store lease expires in 2000. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Peebles and Wal-Mart. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 2595 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)........................................ 438 34.2% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(d)(e)(f).............................................. 339 26.4% H. W. McKay Belk (Director and Executive Officer) (b)(d)(e)(f).............................................. 339 26.4% John R. Belk (Director and Executive Officer) (b)(d)(e)(f).............................................. 339 26.4% Henderson Belk (Director) (c)............................... 53 4.1% Sarah Belk Gambrell (c)..................................... 97 7.6% David Belk Cannon (Director) (h)............................ 56 4.4% James K. Glenn, Jr. (Director) (g).......................... 145 11.3% Leroy Robinson (Director) (b)............................... 6 * Betty B. Melchert........................................... 100 7.8% James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox.................................................... 71 5.5% J.K. Glenn and Sara Stevens Glenn, Trustees under will of A.F. Stevens f/b/o Gretchen Stevens....................... 95 7.4% Belk-Beck Company of Burlington, North Carolina, Inc........ 96 7.4% Pete Huffstetler (Executive Officer)........................ 0 * Gordon J. Tendler (Officer)................................. 0 * Darrell Murphy (Officer).................................... 0 * All Directors and Executive Officers as a group (9 persons).................................................. 669 52.2% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk and Leroy Robinson -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. and Sara Stevens Glenn -- P.O. Box 2736, Winston-Salem, N.C. 27102; Betty B. Melchert -- 1240 Tate Road, Reidsville, N.C. 27320; Pete Huffstetler, Darrell Murphy and Gordon J. Tendler -- 1-104 Carolina Circle Mall, Greensboro, N.C. 27405; Belk-Beck Company of Burlington, North Carolina, Inc. -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 56 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 6 shares held by Thomas M. Belk, Trustee U/A dated September 15, 1993. Voting and investment power is shared by the Trustees, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (c) Includes 50 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by 20 <PAGE> 2596 John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (d) Includes 3 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (e) Includes 62 shares held by Belk Enterprises, Inc. and 96 shares held by Belk-Beck Company of Burlington, North Carolina, Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. 21 <PAGE> 2597 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 2598 BELK DEPARTMENT STORE OF REIDSVILLE, N.C., INC. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 24,948 $ 28,708 Accounts receivable, net.................................. 448,432 490,940 Merchandise inventory..................................... 527,863 535,464 Receivable from affiliates, net........................... 238,047 295,402 Deferred income taxes..................................... 10,580 5,652 Other..................................................... 28,696 21,559 ---------- ---------- Total current assets........................................ 1,278,566 1,377,725 Investments................................................. 4,451 4,451 Property, plant and equipment, net.......................... 117,568 115,908 Other noncurrent assets..................................... 12,905 11,438 ---------- ---------- $1,413,490 $1,509,522 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 196,354 $ 194,003 Accrued income taxes...................................... 9,494 25,847 ---------- ---------- Total current liabilities................................... 205,848 219,850 Deferred income taxes....................................... 15,433 12,340 Other noncurrent liabilities................................ 14,945 16,610 ---------- ---------- Total liabilities........................................... 236,226 248,800 Shareholders' equity: Common stock.............................................. 128,200 128,200 Retained earnings......................................... 1,049,064 1,132,522 ---------- ---------- Total shareholders' equity.................................. 1,177,264 1,260,722 ---------- ---------- $1,413,490 $1,509,522 ========== ========== </TABLE> F-2 <PAGE> 2599 BELK DEPARTMENT STORE OF REIDSVILLE, N.C., INC. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $3,241,897 $3,054,940 $2,824,091 Operating costs and expenses............................... 3,025,903 2,892,868 2,671,157 ---------- ---------- ---------- Income from operations..................................... 215,994 162,072 152,934 ---------- ---------- ---------- Other income (expense): Interest, net............................................ (6,242) (3,958) 5,243 Dividend income.......................................... 160 160 80 Gain (loss) on disposal of property, plant and equipment............................................. -- -- 2,358 Miscellaneous, net....................................... (3,325) (5,591) (672) ---------- ---------- ---------- Total other expense, net................................... (9,407) (9,389) 7,009 ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 206,587 152,683 159,943 Income tax expense (benefit)............................... 74,663 49,395 50,845 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 131,924 103,288 109,098 ---------- ---------- ---------- Net earnings............................................... 131,924 103,288 109,098 Retained earnings at beginning of period................... 869,181 971,416 1,049,064 Dividends paid............................................. (25,760) (25,640) (25,640) Purchase of treasury stock................................. (3,929) -- -- ---------- ---------- ---------- Retained earnings at end of period......................... $ 971,416 $1,049,064 $1,132,522 ========== ========== ========== </TABLE> F-3 <PAGE> 2600 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 2601 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 2602 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13 DISSENTERS' RIGHTS PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2603 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2604 SEC.SEC. 55-13-04 TO 55-13-19. Reserved for future codification purposes. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2605 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2606 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision (a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and (a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2607 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2608 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 2,824,091 $109,098 $154,699 $186,402 $1,260,722 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $ 2,824,091 109,098 154,699 186,402 1,260,722 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... (1,608) (2,358) (2,358) Gain/loss on sale of securities............. -- -- -- Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... (1,608) (2,358) (2,358) -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. (55) (80) (80) Adjustment for ownership in other Belk entities.................................. (4,451) -------- -------- -------- ---------- Per Model..................................... $107,435 $152,261 $183,964 $1,256,271 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (28,707) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (295,402) Loans receivable from affiliates, net..... -- Liabilities Notes payable............................. -- Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (324,109) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $ (324,109) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2609 SUPPLEMENT NO. 62 <PAGE> 2610 BELK DEPARTMENT STORE OF REIDSVILLE, N.C., INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 62 <PAGE> 2611 BELK'S DEPARTMENT STORE OF ROCKINGHAM, N.C., INCORPORATED , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk's Department Store of Rockingham, N.C., Incorporated (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 27.6841 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 110,376 shares of New Belk Class A Common Stock which will represent approximately 0.1840% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2612 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2613 BELK'S DEPARTMENT STORE OF ROCKINGHAM, N.C., INCORPORATED ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK'S DEPARTMENT STORE OF ROCKINGHAM, N.C., INCORPORATED: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk's Department Store of Rockingham, N.C., Incorporated (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 110,376 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2614 BELK'S DEPARTMENT STORE OF ROCKINGHAM, N.C., INCORPORATED SUPPLEMENT NO. 63 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 63 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK'S DEPARTMENT STORE OF ROCKINGHAM, N.C., INCORPORATED (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/ PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 2615 THE COMPANY The Company was incorporated as a North Carolina corporation in 1916. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 27.6841 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common 2 <PAGE> 2616 Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 5,600 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 2617 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 2618 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them 5 <PAGE> 2619 adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. 6 <PAGE> 2620 Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable 7 <PAGE> 2621 range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares 8 <PAGE> 2622 entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. 9 <PAGE> 2623 Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 2624 circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation that within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 2625 The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization 12 <PAGE> 2626 Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine 13 <PAGE> 2627 the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2628 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- -------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales..................... $6,162,425 $6,162,425 0.6 $852,990 $2,844,465 EBITDA........................ 437,520 437,520 7 852,990 2,209,650 EBIT.......................... 179,639 179,639 10 852,990 943,400 Net Income.................... 68,076 68,076 15 -- 1,021,140 Book Equity................... 2,852,161 2,851,585 1 -- 2,851,585 </TABLE> 15 <PAGE> 2629 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - -------------------- -------------------- -------------------- -------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> N/A N/A% X $ N/A = $ N/A ---------- Total $ N/A ========== Relative Operating Value of Company $2,851,585 Relative Operating Value of Other Companies Owned by Company + -- ---------- Total Relative Value of Company = $2,851,585 ========== </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 10.4712% X $ 2,851,585 = $ 298,595 Belk Enterprises, Inc. 10.1533% X 2,851,585 = 289,530 Belk Department Store of Clinton, N.C., Inc. 4.8242% X 2,851,585 = 137,566 ---------- Total $ 725,691 ========== Total Relative Value of Company $2,851,585 Total Relative Value of Company Owned by Other Belk Companies - 725,691 ---------- Net Relative Value of Company = $2,125,894 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $ 2,125,894 / $1,155,623,145 = .1840% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) EXCHANGE RATIO <C> <C> <C> <C> <C> <C> <C> (.1840% X 60,000,007) / 3,987 = 27.6841 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 2630 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 12.73 Book value per share(2)................................... 533.31 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 26.28 Book value per share...................................... 350.53 </TABLE> - --------------- (1) Based on 5,348 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 5,348 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 2631 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $ 6,127 $ 6,059 $ 6,162 Net income.................................................. 186 168 68 Per common share Net income (loss)(1)...................................... 34.87 31.46 12.73 Dividends................................................. 15.00 12.50 12.50 Book value(2)............................................. 514.12 533.08 533.31 Total assets................................................ 3,075 4,256 4,471 Shareholders' Equity........................................ 2,750 2,851 2,852 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $4,236 $4,186 Income from operations...................................... 47 78 </TABLE> - --------------- (1) Based on 5,348 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 5,348 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 2632 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. To the extent a discussion of the financial condition and results of operations of the Company for any of the fiscal years ended January 31, 1995, February 3, 1996 or February 1, 1997 or for either of the nine-month periods ended November 2, 1996 or November 1, 1997 is necessary to identify certain trends or conditions that differ from the combined Belk Companies and that are material to Shareholders' understanding of the financial condition or results of operations of the Company, such discussion is included below. The discussion which follows is based upon and should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus Supplement. Revenues increased 8.3% for the nine months ended November 2, 1996 due to a remodel of the store in November of fiscal year 1996. Income from operations as a percent of sales decreased in fiscal year 1997 from costs incurred in fiscal year 1996 due to an increase in depreciation. The increase in depreciation is attributable to costs incurred in the remodel of the store in November of fiscal year 1996. BUSINESS OF THE COMPANY General. The Company operates a retail department store in Richmond Plaza in Rockingham, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Howard group office in Fayetteville, North Carolina. Facilities. The Company leases its store building, which contains approximately 46,000 square feet of floor area. The current term of the lease expires in 2005. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart and Penney. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 2633 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)(g)..................................... 1,844 34.5% Thomas M. Belk, Jr. (Director and Executive Officer) (b)(d)(f)(g)(h)........................................... 1,558 29.1% H. W. McKay Belk (Director and Executive Officer) (b)(d)(f)(g)(i)........................................... 1,571 29.4% John R. Belk (Director and Executive Officer) (b)(d)(f)(g)(i)........................................... 1,574 29.4% Henderson Belk (Director) (e)............................... 8 * Sarah Belk Gambrell (Director) (e).......................... 434 8.1% David Belk Cannon (Director)................................ 287 5.4% James K. Glenn, Jr. (Director) (l).......................... 184 3.4% Leroy Robinson (Director) (b)(d)............................ 143 2.7% Troy M. Howard (Director and Executive Officer)............. 45 * Mike Belk Hudson............................................ 320 6.0% Katherine McKay Belk (b)(d)(k).............................. 281 5.3% James W. Stephenson, III (m)................................ 265 5.0% Joe John Stephenson (n)..................................... 269 5.0% Robert F. Stephenson (o).................................... 266 5.0% William R. Young (Executive Officer)........................ 0 * Belk Enterprises, Inc. ..................................... 543 10.2% J.V. Properties............................................. 560 10.5% All Directors and Executive Officers as a group (10 persons).................................................. 2,977 55.7% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, Katherine McKay Belk, Belk Enterprises, Inc. and J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Charlotte, N.C. 28207; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P. O. Box 2736, Winston-Salem, N.C. 27102; Mike Belk Hudson -- P. O. Box 556, Narragansett, R. I. 02882; Troy M. Howard and William R. Young -- 4525 Camp Ground Road, Fayetteville, N.C. 28314; James W. Stephenson, III -- 104 Cathcart Circle, Winnsboro, S.C. 29180; Joe John Stephenson -- 306 Carlisle Avenue, Winnsboro, S.C. 29180; Robert F. Stephenson -- 1879 Havenwood Drive, Lancaster, S.C. 29720. All shares of Common Stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 192 shares held by Montgomery Investment Company, of which John M. Belk is the majority shareholder. (b) Includes 20 shares held by Brothers Investment Company, which corporation is equally owned by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, 20 <PAGE> 2634 Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (c) Includes 136 shares held by Claudia W. Belk, Tr. U/A f/b/o Mary Claudia Belk. Claudia W. Belk, Trustee, is John M. Belk's wife. (d) Includes 123 shares held by Milburn Investment Company, of which the Estate of Thomas M .Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas M. Belk, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. (e) Includes 8 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (f) Includes 543 shares held by Belk Enterprises, Inc. and 258 shares held by Belk Department Store of Clinton, N.C., Inc., which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under the authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (g) Includes 560 shares held by J.V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, having voting and investment power with respect to such shares. (h) Includes 13 shares held by Thomas M. Belk, Jr. as custodian for his minor children. (i) Includes 3 shares held by H. W. McKay Belk as custodian for his minor children. (j) Includes 13 shares held by John R. Belk as custodian for his minor children. (k) Includes 98 shares held by Katherine M. Belk as custodian for her minor grandchildren. (l) Includes 164 shares held by James K. Glenn, Jr., Trustee under will of Daisy Belk Mattox and 20 shares held by John Belk Stevens Trust U/W ITEM III, Section C f/b/o James Kirk Glenn, Jr., et al. Voting and investment power is vested in James K. Glenn, Jr., the Trustee of each trust. (m) Includes 15 shares held by James W. Stephenson's wife, Ivor P. Stephenson. (n) Includes 15 shares held by Joe John Stephenson's wife, Alita T. Stephenson. (o) Includes 15 shares held by Robert F. Stephenson's wife, Locketta B. Stephenson. 21 <PAGE> 2635 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 2636 BELK'S DEPARTMENT STORE OF ROCKINGHAM, N.C., INCORPORATED UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 65,486 $ 78,221 Accounts receivable, net.................................. 1,121,251 1,309,537 Merchandise inventory..................................... 1,142,886 1,351,024 Refundable income taxes................................... 41,623 5,645 Deferred income taxes..................................... 31,921 60,334 Other..................................................... 54,253 43,050 ---------- ---------- Total current assets........................................ 2,457,420 2,847,811 Investments................................................. 576 576 Property, plant and equipment, net.......................... 1,773,245 1,600,760 Other noncurrent assets..................................... 25,150 21,992 ---------- ---------- $4,256,391 $4,471,139 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses..................... $ 384,113 $ 415,270 Payables to affiliates, net............................... 448,508 435,363 Accrued income taxes...................................... -- 31,658 ---------- ---------- Total current liabilities................................... 832,621 882,291 Deferred income taxes....................................... 46,266 89,837 Loans payable to affiliates, net............................ 495,841 495,841 Other noncurrent liabilities................................ 30,728 37,274 ---------- ---------- Total liabilities........................................... 1,405,456 1,505,243 Deferred income............................................. -- 113,735 Shareholders' equity: Common stock.............................................. 534,800 534,800 Retained earnings......................................... 2,316,135 2,317,361 ---------- ---------- Total shareholders' equity.................................. 2,850,935 2,852,161 ---------- ---------- $4,256,391 $4,471,139 ========== ========== </TABLE> F-2 <PAGE> 2637 BELK'S DEPARTMENT STORE OF ROCKINGHAM, N.C., INCORPORATED UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales.................................................. $6,126,575 $6,058,927 $6,162,425 Operating costs and expenses............................... 5,822,374 5,821,581 5,984,591 ---------- ---------- ---------- Income from operations..................................... 304,201 237,346 177,834 ---------- ---------- ---------- Other income (expense): Interest, net............................................ 8,372 (5,921) (70,649) Gain (loss) on disposal of property, plant and equipment............................................. (2,393) -- -- Miscellaneous, net....................................... (6,905) 152 1,805 ---------- ---------- ---------- Total other expense, net................................... (926) (5,769) (68,844) ---------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities........ 303,275 231,577 108,990 Income tax expense (benefit)............................... 116,801 63,325 40,914 ---------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities...................... 186,474 168,252 68,076 ---------- ---------- ---------- Net earnings............................................... 186,474 168,252 68,076 Retained earnings at beginning of period................... 2,108,479 2,214,733 2,316,135 Dividends paid............................................. (80,220) (66,850) (66,850) ---------- ---------- ---------- Retained earnings at end of period......................... $2,214,733 $2,316,135 $2,317,361 ========== ========== ========== </TABLE> F-3 <PAGE> 2638 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 2639 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 2640 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; A-1 <PAGE> 2641 (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2642 SEC.SEC. 55-13-04 TO 55-13-19. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2643 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2644 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and(a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2645 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2646 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ---------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement.................... $6,162,425 $68,076 $179,639 $437,520 $2,852,161 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- -- -- -- -- ---------- ------- -------- -------- ---------- Adjusted Shareholders' Statement............... $6,162,425 68,076 179,639 437,520 2,852,161 ========== ------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E................ -- -- -- Gain/loss on sale of securities.............. Impairment loss.............................. -- -- -- Equity in earnings of unconsolidated subsidiaries............................... -- -- -- Gain/loss on discontinued operations......... -- -- -- Adjustment to tax expense.................... -- -- -- -- ------- -------- -------- Total non-operating items...................... -- -- -- ------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities.............................. -- -- -- Adjustment for ownership in other Belk entities................................... (576) ------- -------- -------- ---------- Per Model...................................... $68,076 $179,639 $437,520 $2,851,585 ======= ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents.................... $ (78,220) Negative cash balances reclassified to accounts payable......................... 6 Receivables from affiliates, net........... Loans receivable from affiliates, net...... Liabilities Notes payable.............................. -- Current installments of long-term debt..... -- Current portion of obligations under capital leases........................... -- Payables to affiliates, net................ 435,363 Long-term debt, excluding current installments............................. -- Obligations under capital leases, excluding current portion.......................... -- Loans payable to affiliates, net........... 495,841 ---------- Net debt (cash)................................ 852,990 Adjustments to eliminate less than wholly-owned subsidiaries................................. -- ---------- Per Model...................................... $ 852,990 ========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2647 SUPPLEMENT NO. 63 <PAGE> 2648 BELK'S DEPARTMENT STORE OF ROCKINGHAM, N.C., INCORPORATED THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 63 <PAGE> 2649 BELK-HARRY COMPANY -- SALISBURY, N.C. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk-Harry Company -- Salisbury, N.C. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 25.8928 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 290,103 shares of New Belk Class A Common Stock which will represent approximately 0.4835% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2650 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2651 BELK-HARRY COMPANY -- SALISBURY, N.C. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK-HARRY COMPANY - SALISBURY, N.C.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk-Harry Company -- Salisbury, N.C. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217- 4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 25.8928 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2652 BELK-HARRY COMPANY - SALISBURY, N.C. SUPPLEMENT NO. 64 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 64 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK-HARRY COMPANY - SALISBURY, N.C. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 17 SELECTED HISTORICAL FINANCIAL INFORMATION................... 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 19 BUSINESS OF THE COMPANY..................................... 19 SECURITY OWNERSHIP OF THE COMPANY........................... 20 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 2653 THE COMPANY The Company was incorporated as a North Carolina corporation in 1902. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 25.8928 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2654 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 39,600 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 2655 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 2656 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them 5 <PAGE> 2657 adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. 6 <PAGE> 2658 Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum 7 <PAGE> 2659 and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares 8 <PAGE> 2660 entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed that the act was in, or at least was not opposed to, the best interests of the corporation; provided, however, that no indemnification may be given where the agent is adjudged liable to the corporation with respect to any claim, issue or matter, unless a court shall deem it proper, and then such indemnification may be made only to the extent that such court shall determine. The DGCL requires a corporation to indemnify an agent of the corporation to the extent the agent was successful in the defense of any proceeding, on the merits or otherwise, to which the agent was a party because the agent is or was an agent of the corporation or is or was serving at the corporation's request as an agent of another foreign or domestic corporation or other entity. The DGCL permits a corporation to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provision may not eliminate or limit a director's monetary liability for: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law; (iii) the payment of unlawful dividends, stock repurchases or redemptions; or (iv) transactions in which the director received an improper personal benefit. To the fullest extent permitted and authorized by the DGCL, the New Belk Bylaws and the New Belk Certificate provide for indemnification of its agents and for the elimination or limitation of personal liability of a Director to New Belk or the New Belk Stockholders for monetary damages. New Belk's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity will be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Except as otherwise provided in the NCBCA, a corporation may indemnify an individual who is a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if such individual conducted himself in good faith and such individual (i) reasonably believed, in the case of conduct in his official capacity, that such conduct was in the best interests of the corporation, (ii) reasonably believed, in all other cases, that such conduct was at least not opposed to the best interests of the corporation and (iii) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful. A corporation may not indemnify a director under the NCBCA (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or (ii) in connection with any proceeding with respect to conduct for which he was adjudged liable on the basis that personal benefit was improperly received by him, whether or not involving action in his official capacity. A corporation will indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. 9 <PAGE> 2661 Under NCBCA, a provision limiting or eliminating the personal liability of any director is not effective with respect to (i) acts or omissions that the director at the time of such breach knew or believed were clearly in conflict with the best interests of the corporation, (ii) any liability under unlawful distributions, (iii) any transaction from which the director derived an improper personal benefit or (iv) acts or omissions occurring prior to the date the provisions became effective. The Company Bylaws authorize indemnification as provided in the NCBCA. In addition, the Company Bylaws state that the Company will indemnify and hold harmless its present or former directors and officers against any and all liability and litigation expense, including reasonable attorneys' fees, arising out of their status as such or their activities in either of such capacities; provided, however, that the Company will not indemnify a director or officer against liability or litigation expense that he may incur on account of his activities which were, at the time taken, known or believed by him to be clearly in conflict with the best interest of the Company. The Company will likewise and to the same extent indemnify any person who, at the request of the Company, is or was serving as a director or as an officer of another corporation, joint venture, trust or other enterprise, as a partner of a partnership or as a trustee or administrator under an employee benefit plan. The Company will also indemnify the director or officer for reasonable costs, expenses and attorneys' fees in connection with the enforcement of rights to indemnification granted therein, if it is so determined in accordance with the Company Articles that the director or officer is entitled to indemnification thereunder. The Company Articles provide that to the fullest extent permitted by the NCBCA a director will not be personally liable to the Company, or any of its Shareholders or otherwise for monetary damages for breach of duty of care or other duty as a director. Merger, Consolidation or the Sale of All or Substantially All of the Assets. The DGCL requires stockholders eligible to vote to approve a merger or consolidation by a majority vote of each constituent corporation. Unless required by a corporation's certificate of incorporation, in the case of a merger or consolidation, the DGCL does not require the vote of stockholders of a constituent corporation surviving the merger or consolidation if (i) the merger agreement does not amend the existing certificate of incorporation, (ii) each share of the surviving corporation outstanding before the merger or consolidation is an identical outstanding or treasury share after the merger or consolidation and (iii) either no shares of the surviving corporation and no securities convertible into such stock are to be issued in the merger or consolidation or the number of shares to be issued by the surviving corporation in the merger or consolidation does not exceed 20% of the shares outstanding immediately prior to the merger or consolidation. The DGCL also requires approval by majority vote of the stockholders eligible to vote to approve the sale of all or substantially all of the assets of the corporation other than in the usual and regular course of business. The NCBCA concerning the approval of a merger or share exchange is similar in all material respects to the DGCL, except that under the NCBCA the surviving company's shareholders must approve the transaction if, after giving effect to the transaction, their interest in participating shares is reduced by more than 20%. "Participating shares" are those shares that are entitled to participate without limitation in distributions. The DGCL and the NCBCA provisions on sales of all or substantially all of the assets of a corporation other than in the regular course of business are similar in all material respects. Anti-Takeover Provisions. Both the DGCL and the NCBCA include business combination statutes which are generally designed to deter hostile takeovers by protecting minority shareholders in the second stage of a freeze-out merger. A freeze-out merger occurs when the controlling shareholders prevent minority shareholders from receiving any direct or indirect financial return from the corporation to persuade them to liquidate their investment in the corporation on terms favorable to the controlling shareholders. As defined under the DGCL, "business combinations" generally encompass the following: (i) any merger or consolidation of the corporation or any direct or indirect majority-owned subsidiary of the corporation with an interested shareholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the interested stockholder of a substantial percentage of assets of the corporation; (iii) any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, except in certain circumstances; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation which is owned by the interested stockholder, except in certain 10 <PAGE> 2662 circumstances; or (v) any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in (i) through (iv) above) provided by or through the corporation. The DGCL defines an "interested stockholder" as any person who is (i) the direct or indirect beneficial owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation or (ii) an affiliate or associate of the corporation who within three years of the date in question was the direct or indirect owner of at least 15% of the voting power of any class or series of the then outstanding stock of the corporation. The DGCL prohibits a corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless: (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Under the NCBCA, a "business combination" includes any merger or consolidation of a corporation with or into any other corporation, or the sale or lease of all or any substantial part of the corporation's assets to, or any payment, sale or lease to the corporation or any subsidiary thereof in exchange for securities of the corporation of any assets (except assets having an aggregate fair market value of less than $5 million) of any other entity. The NCBCA requires the approval of 95% of the voting shares of a corporation for the adoption or authorization of a business combination with another entity if that entity is the beneficial owner, directly or indirectly, of 20% of the voting shares of the corporation. Proxies. The DGCL permits a stockholder to appoint a proxy to vote or otherwise act for the stockholder. The appointment of proxy is valid for three years unless the proxy provides for a longer period or, in the case of a revocable proxy, is earlier revoked. As under the DGCL, the NCBCA provides that a shareholder may appoint a proxy to vote or otherwise act for the shareholder. However, the proxy is valid for only 11 months unless a longer period is expressly provided in the appointment form or, in the case of a revocable proxy, is earlier revoked. Preemptive Rights. Under the DGCL, no stockholder has any preemptive right to subscribe for additional shares of stock issued by a corporation or to any security convertible into such stock except to the extent the certificate of incorporation so provides. With two exceptions, the holders of New Belk Common Stock are not entitled to any preemptive rights to subscribe for any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for stock. When New Belk makes an offering of options, rights or warrants to subscribe for shares of any other class or classes of capital stock (other than New Belk Class A Common Stock) to all holders of a class of New Belk Common Stock, New Belk is required to make simultaneously an identical offering to all holders of the other classes of New Belk Common Stock other than to any class of New Belk Common Stock the holders of which, voting as a separate class, determine that such offering need not be made to such class. Further, New Belk may grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of New Belk or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of New Belk, whether now or hereafter authorized. 11 <PAGE> 2663 The NCBCA concerning preemptive rights is similar in all material respects to the DGCL. The Company Articles do not contain a provision with respect to preemptive rights. Shareholder Inspection Rights. Under the DGCL, any stockholder, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, has the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose means a purpose reasonably related to such person's interest as a stockholder. Pursuant to the NCBCA, a shareholder is entitled to inspect, during regular business hours at a reasonable location specified by the corporation, certain records of the corporation if (i) the shareholder makes the demand in good faith and for a proper purpose, (ii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iii) the records are directly connected with the purpose and (iv) the shareholder gives the corporation written notice of the demand at least five business days before the date on which the shareholder wishes to inspect and copy such records. Such documents include: (i) records of any final action taken by the board of directors, records of any final action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders and records of action taken by the shareholders or board of directors without a meeting; (ii) accounting records of the corporation; and (iii) the record of shareholders. DISSENTERS' RIGHTS OF APPRAISAL If the Reorganization and the transactions contemplated thereby are consummated, any Shareholder who properly perfects his statutory dissenters' rights of appraisal in accordance with Article 13 of the NCBCA ("Article 13") is entitled to receive in cash the fair value of such Shareholders' shares of Common Stock determined immediately prior to the Merger, excluding any appreciation or depreciation in value in anticipation of the Merger. The following is a summary of Article 13 and the procedures for Shareholders dissenting from the Merger and perfecting such dissenters' rights of appraisal. This summary is qualified in its entirety by reference to Article 13, which is reprinted in full as Annex A to this Prospectus Supplement. Annex A should be reviewed carefully by any Shareholder who wishes to perfect such statutory dissenters' rights of appraisal. FAILURE TO STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS. Any Shareholder who (i) gives written notice of his intent to demand payment for his shares if the Merger is consummated and becomes effective, which notice is actually received by the Company before the vote is taken at the Special Meeting and (ii) does not vote his shares at the Special Meeting in favor of the proposal to approve the Reorganization Agreement, is entitled, if the Reorganization Agreement is approved and consummated, to receive payment of the fair value of such shareholders's shares upon compliance with the applicable procedural requirements. Such payment shall be made by the "Surviving Corporation" which, for purposes of this Dissenters' Rights summary, means (i) the Company, with respect to action taken prior to the Effective Time and (ii) New Belk, with respect to action taken after the Effective Time. Any written notice of a Shareholders's intent to demand payment for such Shareholder's shares of Common Stock if the Merger is consummated must be received by the Company at: 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, Attention: Ralph A. Pitts, General Counsel, prior to the shareholder vote at the Special Meeting. A Shareholder who votes for the Merger will have no dissenters' rights. The submission by a Shareholder of a proxy card without voting instructions with respect to the proposal to approve the Merger or a proxy voted in favor of the Reorganization Agreement (if not revoked) will count as a vote in favor of the Merger and will serve to waive dissenters' rights. A Shareholder who does not satisfy each of these requirements is not entitled to payment for such Shareholder's shares of Common Stock under the dissenters' rights provisions of the NCBCA and will be bound by the terms of the Reorganization Agreement. After the Special Meeting, but no later than 10 days after the Effective Time, the Surviving Corporation must mail, by registered or certified mail, return receipt requested, a written dissenters' notice (a "Dissenters' Notice") to all Shareholders who have given the required notice and not voted in favor of the Reorganization 12 <PAGE> 2664 Agreement as described above. The Dissenters' Notice will (i) supply a form for demanding payment (a "Payment Demand"), (ii) state where the Payment Demand must be sent and where and when certificates must be deposited, (iii) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the Payment Demand is received, (iv) set a date by which the Surviving Corporation must receive the Payment Demand, which date may not be fewer than 30 nor more than 60 days after the date the Dissenters' Notice is mailed and (v) be accompanied by a copy of Article 13. A Shareholder who is sent a Dissenters' Notice and who wishes to assert dissenters' rights must demand payment and deposits his certificates in accordance with the terms of the Dissenters' Notice. A Shareholder who demands payment and deposit his certificates in accordance with the terms of the Dissenters' Notice retains all other rights of a Shareholder until these rights are canceled or modified by the consummation and effectiveness of the Merger. A Shareholder who does not demand payments or deposit his certificates in accordance with the terms of the Dissenters' Notice will not be entitled to payment for his shares under the NCBCA. If any such holder of Common Stock fails to perfect or shall have effectively withdrawn or lost such right, each share of such holder's Common Stock will thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the number of shares of New Belk Class A Common Stock such Shareholder is otherwise entitled to as a result of the Merger. As soon as the Merger is consummated, or within 30 days after receipt of a Payment Demand, the Surviving Corporation must pay each dissenter who complied with the requirements of Article 13 the amount the Surviving Corporation estimates to be the fair value of such Shareholder's shares of Common Stock, plus interest accrued to the date of payment ("Payment"). The Payment must be accompanied by: (i) the Surviving Corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the Payment, an income statement for that year, a statement of cash flows for that year and the latest available interim financial statements, if any; (ii) an explanation of how the Corporation estimated the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenters' right to demand payment under the provisions of the NCBCA; and (v) a copy of Article 13. If the Merger is not effected within 60 days after the date set for demanding payment and depositing Certificates, the Surviving Corporation will return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. If after returning deposited certificates and releasing transfer restrictions, the Merger is effected, the Surviving Corporation will deliver a new Dissenters' Notice and repeat the payment demand procedure. A dissenting Shareholder may notify the Surviving Corporation in writing of his own estimate of the fair value of such shares and the amount of interest due, and demand payment of the amount in excess of the Payment for the fair value of his shares and interest due (a "Demand for Payment") if: (i) the dissenting Shareholder believes the amount paid by the Surviving Corporation is less than the fair value of his shares or that the interest due is incorrectly calculated; (ii) the Surviving Corporation fails to make the Payment; or (iii) the Surviving Corporation, having failed to take the proposed action, does not return the deposited certificates within 60 days after the date set for demanding payment. A dissenting Shareholder waives his right to make a Demand for Payment under (i), (ii) and (iii) above unless he notifies the Surviving Corporation of his demand in writing under subparagraph (i) above within 30 days after the Surviving Corporation's Payment for his shares or under subparagraph (ii) or (iii) above within 30 days after the Surviving Corporation has failed to perform in a timely manner. A dissenting Shareholder who fails to notify the Surviving Corporation of his Demand for Payment under (i), (ii) or (iii) above within the applicable 30-day period will be deemed to have withdrawn his dissent and Demand for Payment. If a Demand for Payment remains unsettled, the dissenting Shareholder may commence a proceeding within 60 days after the earlier of (i) the date of his Demand for Payment or (ii) the date the Payment is made, and petition the Superior Court Division of the General Court of Justice (the "Court"), to determine 13 <PAGE> 2665 the fair value of the shares and accrued interest. A dissenting Shareholder who takes no action within such 60-day period is deemed to have withdrawn his dissent and Demand for Payment. A Shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he complies with the conditions established by Article 13 with respect to all shares beneficially owned by any one person and notifies the Company in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of such a partial dissenting Shareholder are determined as to which such Shareholder dissents and such Shareholder's other shares were registered in the names of different shareholders. A beneficial Shareholder may assert dissenters' rights as to the shares held on his behalf only if (i) such Shareholder submits to the Company the record Shareholder's written consent to the dissent not later than the time the beneficial Shareholder asserts dissenters' rights and (ii) such Shareholder does so with respect to all shares of which he is the beneficial Shareholder. DETERMINATION OF EXCHANGE RATIO The methodology used to determine the Exchange Ratio for the Merger is described in detail in the Proxy Statement/Prospectus under the caption "Determination of Applicable Exchange Ratios." As further described in the Proxy Statement/Prospectus, the first step in determining the Exchange Ratio is to calculate the relative operating value (the "Relative Operating Value") of the Company by applying the designated multiples and taking the highest of: (i) the Company's adjusted sales during the period from February 4, 1996 to February 1, 1997 (the "Measurement Period") multiplied by six-tenths, less Net Debt (calculated in accordance with Annex B of this Prospectus Supplement under "Components of Net Debt (Cash) per Shareholders' Statement") at the end of the Measurement Period; (ii) the Company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") during the Measurement Period multiplied by seven, less Net Debt at the end of the Measurement Period; (iii) the Company's adjusted earnings before interest and taxes ("EBIT") during the Measurement Period multiplied by 10, less Net Debt at the end of the Measurement Period; (iv) the Company's adjusted net income during the Measurement Period multiplied by 15; and (v) the Company's adjusted book equity multiplied by one. The second step involves determining the total relative value (the "Total Relative Value") of the Company by adding the Relative Operating Value for the Company to the product of (i) the percentage ownership in other Belk Companies held by the Company and (ii) the corresponding Total Relative Value of the other Belk Companies in which the Company owns a percentage interest. The net relative value (the "Net Relative Value") for the Company is then determined by subtracting from the Total Relative Value of the Company the product of (i) the respective percentage ownership interest of the Company held by other Belk Companies and (ii) the Total Relative Value of the Company. The percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger is then determined by dividing the Net Relative Value of the Company by the aggregate Net Relative Values of all Belk Companies. Finally, the Exchange Ratio for the Merger is determined by dividing the product of (i) the percentage of New Belk Class A Common Stock expected to be owned by the Shareholders (other than Belk Companies) upon consummation of the Merger and (ii) 60,000,007 (the number of shares of New Belk Class A Common Stock expected to be issued to Existing Belk Shareholders (other than Belk Companies) in the Reorganization), by the number of shares of Common Stock outstanding on November 25, 1997 (other than shares of Common Stock held by other Belk Companies). See "Determination of Applicable Exchange Ratios" in the Proxy Statement/Prospectus. 14 <PAGE> 2666 The following table shows the computation of Relative Operating Value for the Company, based on each separate methodology as described above: <TABLE> <CAPTION> NET DEBT RELATIVE METHODOLOGY ACTUAL ADJUSTED MULTIPLE (CASH) OPERATING VALUES - ----------- ---------- ---------- -------- ----------- ---------------- <S> <C> <C> <C> <C> <C> Net Sales............ $9,484,476 $9,484,476 0.6 $(3,113,073) $8,803,759 EBITDA............... 645,084 645,083 7 (3,113,073) 7,628,654 EBIT................. 535,770 535,769 10 (3,113,073) 8,470,763 Net Income........... 397,155 397,155 15 -- 5,957,325 Book Equity.......... 6,672,869 6,397,136 1 -- 6,397,136 </TABLE> 15 <PAGE> 2667 The following table shows the method used to calculate the Total Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- TOTAL RELATIVE VALUE RELATIVE OPERATING PERCENTAGE OF OTHER OF VALUE OF OTHER BELK COMPANIES BELK COMPANIES OWNED OTHER BELK COMPANIES OTHER BELK COMPANIES OWNED BY COMPANY BY COMPANY OWNED BY COMPANY OWNED BY COMPANY <S> <C> <C> <C> <C> <C> Belk Brothers Company .2044% X $261,959,587 = $ 535,445 Belk Enterprises, Inc. .0985% X 357,823,093 = 352,456 Matthews-Belk Company .1953% X 35,812,651 = 69,942 Belk Brothers of Monroe, North Carolina, Incorporation .6636% X 16,994,981 = 112,779 ---------- Total $1,070,622 ========== Relative Operating Value of Company $8,803,758 Relative Operating Value of Other Companies Owned by Company + 1,070,622 ---------- Total Relative Value of Company = $9,874,380 ---------- </TABLE> The following table shows the method used to calculate the Net Relative Value of the Company: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- PERCENTAGE OWNERSHIP OF OTHER BELK TOTAL RELATIVE VALUE OTHER BELK COMPANIES COMPANIES TOTAL RELATIVE VALUE OF COMPANY OWNED BY THAT OWN COMPANY IN COMPANY OF COMPANY OTHER BELK COMPANIES <S> <C> <C> <C> <C> <C> Belk Brothers Company 41.596% X $ 9,874,380 = $4,107,347 Belk Enterprises, Inc. 1.6162% X 9,874,380 = 159,590 Belk Finance Company .2020% X 9,874,380 = 19,946 ---------- Total $4,286,883 ========== Total Relative Value of Company $9,874,380 Total Relative Value of Company Owned by Other Belk Companies - 4,286,883 ---------- Net Relative Value of Company = $5,587,497 ========== </TABLE> The following table shows the method used to calculate the percentage of New Belk Class A Common Stock allocated to the Shareholders (other than Belk Companies) upon consummation of the Merger: <TABLE> <CAPTION> - ----------------------------- ----------------------------- ----------------------------- AGGREGATE NET RELATIVE VALUE PERCENTAGE OF NEW BELK CLASS NET RELATIVE VALUE OF OF ALL A COMMON STOCK ALLOCATED TO COMPANY BELK COMPANIES SHAREHOLDERS(1) <C> <C> <C> <C> <C> $5,587,497 / 1,155,623,145 = .4835% </TABLE> The following table shows the method used to calculate the Exchange Ratio for the Merger: <TABLE> <CAPTION> - --------------------- --------------------- --------------------- --------------------- SHARES OF NEW BELK CLASS A PERCENTAGE OF NEW COMMON STOCK ISSUED BELK IN THE CLASS A COMMON STOCK REORGANIZATION TO NUMBER OF OUTSTANDING ALLOCATED TO EXISTING SHARES OF COMMON APPLICABLE EXCHANGE SHAREHOLDERS(1) BELK SHAREHOLDERS STOCK(2) RATIO <C> <C> <C> <C> <C> <C> <C> (.4835% X 60,000,007) / 11,204 = 25.8928 </TABLE> (1) Does not include any Belk Companies that own Common Stock of the Company. (2) Does not include shares of Common Stock held by other Belk Companies. The Exchange Ratio was derived from certain financial information in the Company's financial statements for the fiscal year ended February 1, 1997 included elsewhere herein (the "Company Financials"). Such financial information has been adjusted to take into account unusual items and to reflect only the direct operating business of the Company. The adjustments to such financial information are described in Annex B to the Prospectus Supplement. 16 <PAGE> 2668 COMPARATIVE PER SHARE DATA Set forth below are certain historical earnings per share and book value per share data of the Company, unaudited pro forma combined per share data of New Belk and unaudited pro forma equivalent per share data of New Belk giving effect to the Reorganization. The data set forth below should be read in conjunction with the historical financial statements of the Company, including the condensed notes thereto, contained elsewhere in this Prospectus Supplement and unaudited pro forma combined financial statements of New Belk, including the notes thereto, contained in the Proxy Statement/Prospectus. <TABLE> <CAPTION> FISCAL YEAR ENDED FEBRUARY 1, 1997 ----------------- <S> <C> COMPANY HISTORICAL Earnings per share(1)..................................... $ 20.06 Book value per share(2)................................... 337.01 NEW BELK PRO FORMA COMBINED(3) Earnings per share from continuing operations............. 0.95 Book value per share(4)................................... 12.66 PRO FORMA EQUIVALENTS(3)(5) Earnings per share from continuing operations............. 24.58 Book value per share...................................... 327.85 </TABLE> - --------------- (1) Based on 19,800 shares of Common Stock, the weighted average number of shares of Common Stock outstanding during the year ended February 1, 1997. (2) Historical book value per share information for the Company is computed by dividing historical shareholders' equity for the Company by 19,800 shares of Common Stock, the number of shares of Common Stock outstanding at the end of the period presented. (3) All pro forma per share data has been calculated on the basis of 60,000,008 shares of New Belk Class A Common Stock outstanding upon consummation of the Reorganization, which excludes the 246,174 shares of New Belk Class A Common Stock which will be acquired by Belk-Simpson in the Belk-Simpson Merger. See "Determination of Exchange Ratio." (4) Pro forma combined book value per share information is computed by dividing pro forma shareholders' equity by the pro forma shares of New Belk. (5) Pro forma equivalent per share information for the Company is computed by multiplying New Belk pro forma combined book value per share and New Belk pro forma combined earnings per share from continuing operations by the Exchange Ratio for the Merger. 17 <PAGE> 2669 SELECTED HISTORICAL FINANCIAL INFORMATION The selected data presented below for, and as of the end of, each of the years in the three-year period ended February 1, 1997 and for the nine-month periods ended November 2, 1996 and November 1, 1997 is derived from the unaudited financial statements of the Company, certain of which are included elsewhere in this Prospectus Supplement. The unaudited interim data reflects, in the judgment of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results for such interim periods. Results of operations for unaudited interim periods are not necessarily indicative of results which may be expected for any interim or annual period. <TABLE> <CAPTION> FISCAL YEAR ENDED --------------------------------------- JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................... $10,114 $ 9,701 $ 9,484 Net income.................................................. 494 451 397 Per common share Net income (loss)(1)...................................... 24.94 22.79 20.06 Dividends................................................. 10.00 12.00 12.00 Book value(2)............................................. 318.16 328.96 337.01 Total assets................................................ 7,037 7,309 7,637 Shareholders' equity........................................ 6,300 6,513 6,673 </TABLE> --------------- <TABLE> <CAPTION> NINE MONTHS ENDED ------------------------- NOVEMBER 2, NOVEMBER 1, 1996 1997 ----------- ----------- (DOLLARS IN THOUSANDS) <S> <C> <C> Net sales................................................... $6,514 $6,585 Income from operations...................................... 258 430 </TABLE> - --------------- (1) Based on 19,800 shares of Common Stock, the weighted average number of shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. (2) Based on 19,800 shares of Common Stock outstanding as of January 31, 1995, February 3, 1996 and February 1, 1997. 18 <PAGE> 2670 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the historical combined financial condition and results of operations of the Belk Companies for each of the fiscal years ended January 31, 1995, February 3, 1996 and February 1, 1997 and for each of the nine-month periods ended November 2, 1996 and November 1, 1997 is included in the Proxy Statement/Prospectus. The financial information, discussion and analysis included therein is based upon and should be read in conjunction with the historical combined financial statements of the Belk Companies, including the notes thereto, which are also included in the Proxy Statement/Prospectus. BUSINESS OF THE COMPANY General. The Company operates a retail department store at Salisbury Mall in Salisbury, North Carolina. The Company's store operates in a manner consistent with the business of the Belk Companies described in the Proxy Statement/Prospectus. The store is managed out of the Pennell group office in Charlotte, North Carolina. The Company sold its former downtown Salisbury store location in 1994 and took back a note and mortgage. The mortgagor is presently current in its payments and the remaining balance on the note is approximately $150,000. The Company is also a minority owner of 601/70 Development Corporation, the owner and operator of a strip shopping center adjacent to Salisbury Mall. The Company's 7.393% share of net revenues from this business averages approximately $5,000 per year. Facilities. The Company leases its store building, which contains approximately 88,000 square feet of floor area. The current term of the lease expires in 2006. The Company believes the building is adequate to meet its current needs. Competition. Specific competitors in the Company's market include Wal-Mart, Penney and Goody's. Legal Proceedings. The Company is not currently a party to any material litigation and is currently not aware of any pending or threatened litigation that could have a material adverse effect on the Company's business, financial condition or results of operations. 19 <PAGE> 2671 SECURITY OWNERSHIP OF THE COMPANY The following table sets forth, based on the number of shares of Common Stock of the Company beneficially owned as of November 1, 1997, the beneficial ownership of Common Stock of the Company by: (i) each person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company; (ii) the chief executive officer and the four other persons who were the most highly compensated executive officers of the Company at the end of fiscal year 1997; (iii) each director of the Company; and (iv) all executive officers and directors of the Company as a group. <TABLE> <CAPTION> BENEFICIAL OWNERSHIP ---------------------------- SHARES OF PERCENT OF COMPANY COMPANY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK - ------------------------------------ ------------ ------------ <S> <C> <C> John M. Belk (Director and Executive Officer) (a)(b)(c)(d)(e)(f)(g)..................................... 10,762 54.4% Thomas M. Belk, Jr. (Director and Executive Officer) (a)(c)(f)(g).............................................. 9,068 45.8% H. W. McKay Belk (Director and Executive Officer) (a)(c)(f)(g).............................................. 9,068 45.8% John R. Belk (Director and Executive Officer) (a)(c)(f)(g).............................................. 9,068 45.8% Henderson Belk (d)(e)....................................... 1,064 5.4% Sarah Belk Gambrell (Director) (d)(e)....................... 1,844 9.3% David Belk Cannon (Director) (i)............................ 768 3.9% James K. Glenn, Jr. (Director) (h).......................... 592 3.0% Leroy Robinson (Director) (a)(c)............................ 432 2.2% Elizabeth C. Upchurch (Director)............................ 2,400 12.1% Wayne Upchurch (Director) (j)............................... 2,400 12.1% Charles C. Couch, Jr. (Director)............................ 2,400 12.1% John H. Pennell (Executive Officer)......................... 0 * J.V. Properties............................................. 8,236 41.6% All Directors and Executive Officers as a group (13 persons).................................................. 17,822 90.0% </TABLE> - --------------- * Less than 1% of the outstanding Common Stock. The business/mailing addresses for the beneficial owners, directors and/or officers are: John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, Henderson Belk, Leroy Robinson, J.V. Properties -- 2801 West Tyvola Road, Charlotte, N.C. 28217-4500; Sarah Belk Gambrell -- 300 Cherokee Road, Suite 640, Charlotte, N.C. 28210; David Belk Cannon -- 1607 W. Floyd Baker Blvd., Gaffney, S.C. 29341; James K. Glenn, Jr. -- P.O. Box 2736, Winston-Salem, N.C. 27102; Elizabeth C. Upchurch and Wayne Upchurch -- 609 Sardis Road N., Charlotte, N.C. 28270; Charles G. Couch, Jr. -- 6643 Gaywind Drive, Charlotte, N.C. 28226; John H. Pennell -- 308 East Fifth Street, Charlotte, N.C. 28202. All shares of common stock indicated in the above table are subject to the sole investment and voting power of the beneficial owners, directors and/or officers, except as otherwise set forth in the footnotes below. (a) Includes 272 shares held by Brothers Investment Company, which is owned equally by John M. Belk and the Estate of Thomas M. Belk. Voting and investment power is shared by John M. Belk, Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk and Leroy Robinson. (b) Includes 30 shares held by Mary Claudia Belk Irrevocable Trust dated 1/4/94. Claudia W. Belk, Trustee, is John M. Belk's wife. (c) Includes 360 shares held by Milburn Investment Company, of which the Estate of Thomas M. Belk is the sole shareholder. Voting and investment power is shared by the Executors of the Estate of Thomas M. Belk, who are Katherine McKay Belk, Katherine Belk Morris, Thomas M. Belk, Jr., H. W. McKay Belk, John R. Belk, John M. Belk and Leroy Robinson. 20 <PAGE> 2672 (d) Includes 1,040 shares held in several trusts established by the will of W. H. Belk for the benefit of his children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and Investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (e) Includes 24 shares held in several trusts established by the will of Mary I. Belk for the benefit of her children. Voting and investment power of the trusts for John M. Belk and Thomas M. Belk is shared by John M. Belk, Sarah Belk Gambrell and Henderson Belk. Voting and investment power of the trusts for Sarah Belk Gambrell, W. H. Belk, Jr. and Henderson Belk is shared by John M. Belk, Sarah Belk Gambrell, Henderson Belk and W. H. Belk, Jr. (f) Includes 320 shares held by Belk Enterprises, Inc. and 40 shares held by Belk Finance Company which shares are voted by the members of the Executive Committee of the Board of Directors of each such corporation, under authority given by the directors of each such corporation at the annual meeting of directors held in March, 1997. The Executive Committee of each such corporation consists of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk. (g) Includes 8,236 shares of J. V. Properties, a partnership. The Board of Managers, consisting of John M. Belk, Thomas M. Belk, Jr., H. W. McKay Belk and John R. Belk, have voting and investment power with respect to such shares. (h) Includes 592 shares held by James K. Glenn, Jr., Trustee under Will of Daisy Belk Mattox. Voting and investment power is vested in James K. Glenn, Jr., the Trustee. (i) Includes 268 shares held by Residuary Trust u/w Mrs. Henry Belk Cannon. The Trustees, David Belk Cannon and John C. Daughtridge, have voting and investment power with respect to such shares. (j) Includes 2,400 shares held by Wayne Upchurch's wife, Elizabeth C. Upchurch. 21 <PAGE> 2673 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Unaudited Balance Sheets.................................... F-2 Unaudited Statements of Earnings and Retained Earnings...... F-3 Condensed Notes to Unaudited Historical Financial Statements................................................ F-4 </TABLE> F-1 <PAGE> 2674 BELK-HARRY COMPANY -- SALISBURY, N.C. UNAUDITED BALANCE SHEETS FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 <TABLE> <CAPTION> FEBRUARY 3, FEBRUARY 1, 1996 1997 ----------- ----------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $1,878,840 $ 158,720 Accounts receivable, net.................................. 1,486,066 1,642,306 Merchandise inventory..................................... 1,839,721 1,694,876 Receivable from affiliates, net........................... 1,368,528 3,137,578 Deferred income taxes..................................... 54,799 64,815 Other..................................................... 294,666 278,177 ---------- ---------- Total current assets........................................ 6,922,620 6,976,472 Investments................................................. 22,919 315,675 Property, plant and equipment, net.......................... 310,721 247,854 Deferred income taxes....................................... 18,319 9,100 Other noncurrent assets..................................... 34,351 87,536 ---------- ---------- $7,308,930 $7,636,637 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable............................................. $ -- $ 183,226 Accounts payable and accrued expenses..................... 581,950 592,433 Accrued income taxes...................................... 109,578 77,685 ---------- ---------- Total current liabilities................................... 691,528 853,344 Other noncurrent liabilities................................ 104,089 110,424 ---------- ---------- Total liabilities........................................... 795,617 963,768 Shareholders' equity: Common stock.............................................. 1,980,000 1,980,000 Retained earnings......................................... 4,533,313 4,692,869 ---------- ---------- Total shareholders' equity.................................. 6,513,313 6,672,869 ---------- ---------- $7,308,930 $7,636,637 ========== ========== </TABLE> F-2 <PAGE> 2675 BELK-HARRY COMPANY -- SALISBURY, N.C. UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS PERIODS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 <TABLE> <CAPTION> JANUARY 31, FEBRUARY 3, FEBRUARY 1, 1995 1996 1997 ----------- ----------- ----------- <S> <C> <C> <C> Total store sales....................................... $10,224,321 $9,704,861 $9,484,477 Less: Leased Sales...................................... 110,124 3,694 -- ----------- ---------- ---------- Net sales............................................... 10,114,197 9,701,167 9,484,477 Operating costs and expenses............................ 9,407,880 9,120,798 8,940,677 ----------- ---------- ---------- Income from operations.................................. 706,317 580,369 543,800 ----------- ---------- ---------- Other income (expense): Interest, net......................................... 105,160 157,941 114,141 Miscellaneous, net.................................... (6,365) (1,630) (8,029) ----------- ---------- ---------- Total other expense, net................................ 98,795 156,311 106,112 ----------- ---------- ---------- Earnings from continuing operations before income taxes, and equity in earnings of unconsolidated entities..... 805,112 736,680 649,912 Income tax expense (benefit)............................ 311,305 285,419 252,756 ----------- ---------- ---------- Earnings from continuing operations before equity in earnings of unconsolidated entities................... 493,807 451,261 397,156 ----------- ---------- ---------- Net earnings............................................ 493,807 451,261 397,156 Retained earnings at beginning of period................ 4,023,845 4,319,652 4,533,313 Dividends paid.......................................... (198,000) (237,600) (237,600) ----------- ---------- ---------- Retained earnings at end of period...................... $ 4,319,652 $4,533,313 $4,692,869 =========== ========== ========== </TABLE> F-3 <PAGE> 2676 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 31, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) FISCAL YEAR The financial statements are prepared on a corporate or consolidated basis, as appropriate, for each entity and such entity will hereafter be referred to as the "Company". The Company's fiscal year ends on the Saturday closest to each January 31. (2) CONSOLIDATION The Company's financial statement includes its share of earnings from consolidated and unconsolidated subsidiaries, if any. A consolidated subsidiary is one that the parent company owns greater than 50% of the outstanding stock of the subsidiary. The consolidated statements present the results of operations and financial position of the parent company and its subsidiaries essentially as if the group were a single enterprise. This means the Company's ownership percentage of current shareholders' equity of the subsidiaries is included in the consolidated financial statements. An unconsolidated subsidiary is one that the company owns 20% or more but not greater than 50% of the outstanding stock of another company. The financial statements of the owning company reflect its ownership percentage of the earnings of the owned company. The investment in that company is recorded using the equity method. (3) NET SALES Net sales include merchandise sales, net of returns. Layaway sales are recorded upon receipt of the initial deposit. (4) MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market determined by the retail inventory method. (5) INCOME TAXES The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets related to net operating loss carryforwards and/or tax credit carryforwards, if any, are stated at estimated net realizable value based on projections of future taxable income provided by the Company's management. If in future years, evidence suggests that the Company will not generate federal taxable income, as projected by management, some or all of the deferred tax assets in the accompanying balance sheets will be written-off as tax expense from continuing operations and shareholders' equity will be reduced accordingly. (6) PROPERTY AND EQUIPMENT Capital additions, improvements, and major renewals are classified as property and equipment and are reported at cost. Depreciation is provided over the estimated useful lives (3-40 years) of the assets utilizing straight-line and various accelerated methods for financial reporting purposes. Major additions and improvements are capitalized. Expenditures for maintenance, repair and minor replacements are charged to operations as incurred. F-4 <PAGE> 2677 CONDENSED NOTES TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENT SECURITIES Effective February 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that the Company classify investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories and account for them as follows: - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. Investments in equity securities of closely held companies and securities that do not have readily determinable fair values such as investments in other Belk companies are not subject to the provisions of SFAS No. 115. Any investments in these types of securities owned by the Company are recorded at original cost unless the ownership is 20% or more (see note 2 above). (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Company participates with Belk Stores Services, Inc. ("BSS") in obtaining merchandising, architectural, legal, accounting, internal audit, accounts payable, and other administrative services. The Company participates in operational, investing and financing activity with affiliated companies, which are defined as any companies in the Belk group of corporations. Receivables from and payables to affiliates within the Company have been eliminated. All other loans and receivables from and loans and payables to affiliates have been netted in the accompanying balance sheets. (9) POSTRETIREMENT BENEFITS The Company accounts for postretirement benefits in accordance with the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the cost of these benefits be recognized in the financial statements over an employee's term of service with the Company. (10) RECLASSIFICATIONS Certain 1996 amounts have been reclassified in order to be consistent with classifications adopted in 1997. These reclassifications have no effect on the Company's total shareholders' equity or net earnings as previously reported. (11) NEW ACCOUNTING PRONOUNCEMENT In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which addresses the identification and measurement of asset impairments. SFAS No. 121 is effective for financial statements issued for all fiscal periods starting after December 15, 1995 and requires the recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. F-5 <PAGE> 2678 ANNEX A DISSENTERS' RIGHTS OF APPRAISAL CHAPTER 55 NORTH CAROLINA BUSINESS CORPORATION ACT STATE OF NORTH CAROLINA ARTICLE 13. DISSENTERS' RIGHTS. PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SEC. 55-13-01. DEFINITIONS. In this Article: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under G.S. 55-13-02 and who exercises that right when and in the manner required by G.S. 55-13-20 through 55-13-28. (3) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances, giving due consideration to the rate currently paid by the corporation on its principal bank loans, if any, but not less than the rate provided in G.S. 24-1. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. SEC. 55-13-02. RIGHT TO DISSENT. (a) In addition to any rights granted under Article 9, a shareholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation (other than a parent corporation in a merger under G.S. 55-11-04) is a part unless (i) approval by the shareholders of that corporation is not required under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, unless such shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for such shares; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than as permitted by G.S. 55-12-01, including a sale in dissolution, but not including a sale pursuant to court order or a sale pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed in cash to the shareholders within one year after the date of sale; A-1 <PAGE> 2679 (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes; (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional shares so created is to be acquired by cash under G.S. 55-6-04; (vi) changes the corporation into a nonprofit corporation or cooperative organization; (5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (b) A shareholder entitled to dissent and obtain payment for his shares under this Article may not challenge the corporate action creating his entitlement, including without limitation a merger solely or partly in exchange for cash or other property unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding any other provision of this Article, there shall be no right of dissent in favor of holders of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting at which the plan of merger or share exchange or the sale or exchange of property is to be acted on, were (i) listed on a national securities exchange or (ii) held by at least 2,000 record shareholders, unless in either case: (1) The articles of incorporation of the corporation issuing the shares provide otherwise; (2) In the case of a plan of merger or share exchange, the holders of the class or series are required under the plan of merger or share exchange to accept for the shares anything except: a. Cash. b. Shares, or shares and cash in lieu of fractional shares of the surviving or acquiring corporation, or of any other corporation which, at the record date fixed to determine the shareholders entitled to receive notice of and vote at the meeting at which the plan of merger or share exchange is to be acted on, were either listed subject to notice of issuance on a national securities exchange or held of record by at least 2,000 record shareholders; or c. A combination of cash and shares as set forth in sub-subdivisions a. and b. of this subdivision. SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (1) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) He does so with respect to all shares of which he is the beneficial shareholder. A-2 <PAGE> 2680 SEC.SEC. 55-13-04 TO 55-13-19. Reserved for future codification purposes. PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this Article and be accompanied by a copy of this Article. (b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken without a vote of shareholders, the corporation shall no later than 10 days thereafter notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in G.S. 55-13-22. (c) If a corporation fails to comply with the requirements of this section, such failure shall not invalidate any corporate action taken; but any shareholder may recover from the corporation any damage which he suffered from such failure in a civil action brought in his own name within three years after the taking of the corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted for such corporate action. SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate action creating dissenters' rights under G.S. 55-15-02 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (1) Must give to the corporation, and the corporation must actually receive, before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (2) Must not vote his shares in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this Article. SEC. 55-13-22. DISSENTERS' NOTICE. (a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by registered or certified mail, return receipt requested, a written dissenters' notice to all shareholders who satisfied the requirements of G.S. 55-13-21. (b) The dissenters' notice must be sent no later than 10 days after shareholder approval, or if no shareholder approval is required, after the approval of the board of directors, of the corporate action creating dissenters' rights under G.S. 55-13-02, and must: (1) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (2) Inform holders of uncertified shares to what extent transfer of the shares will be restricted after the payment demand is received; (3) Supply a form for demanding payment; (4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is mailed; and (5) Be accompanied by a copy of this Article. SEC. 55-13-23. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must demand payment and deposit his share certificates in accordance with the terms of the notice. A-3 <PAGE> 2681 (b) The shareholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. (c) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set forth in the dissenters' notice, is not entitled to payment for his shares under this Article. SEC. 55-13-24. SHARE RESTRICTIONS. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under G.S. 55-13-26. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. SEC. 15-13-25. PAYMENT. (a) As soon as the proposed corporate action is taken, or within 30 days after receipt of a payment demand, the corporation shall pay each dissenter who complied with G.S. 55-13-23 the amount the corporation estimates to be the fair value of his shares, plus interest accrued to the date of payment. (b) The payment shall be accompanied by: (1) The corporation's most recent available balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of cash flows for that year, and the latest available interim financial statements, if any: (2) An explanation of how the corporation estimated the fair value of the shares; (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under G.S. 55-13-28; and (5) A copy of this Article. SEC. 55-13-26. FAILURE TO TAKE ACTION. (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on the uncertificated shares. (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure. SEC. 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES. SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT OR FAILURE TO PERFORM. (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of the amount in excess of the payment by the corporation under G.S. 55-13-25 for the fair value of his shares and interest due, if: (1) The dissenter believes that the amount paid under G.S. 55-13-25 is less than the fair value of his shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under G.S. 55-13-25; or A-4 <PAGE> 2682 (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment. (b) A dissenter waives his right to demand payment under this section unless he notified the corporation of his demand in writing (i) under subdivision(a)(1) within 30 days after the corporation made payment for his shares or (ii) under subdivisions(a)(2) and (a)(3) within 30 days after the corporation has failed to perform timely. A dissenter who fails to notify the corporation of his demand under subsection (a) within such 30-day period shall be deemed to have withdrawn his dissent and demand for payment. SEC. 55-13-29. RESERVED FOR FUTURE CODIFICATION PURPOSES. PART 3. JUDICIAL APPRAISAL OF SHARES SEC. 55-13-30. COURT ACTION. (a) If a demand of payment under G.S. 55-13-28 remains unsettled, the dissenter may commence a proceeding within 60 days after the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's payment demand under G.S. 55-13-28 and by filing a complaint with the Superior Court Division of the General Court of Justice to determine the fair value of the shares and accrued interest. A dissenter who takes no action within the 60-day period shall be deemed to have withdrawn his dissent and demand for payment. (b) Reserved for future codification purposes. (c) The court shall have the discretion to make all dissenters (whether or not residents of this State) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the complaint. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the superior court in which the proceeding is commenced under subsection (a) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The parties are entitled to the same discovery rights as parties in other civil proceedings. The proceeding shall be tried as in other civil actions. However, in a proceeding by a dissenter in a corporation that was a public corporation immediately prior to consummation of the corporate action giving rise to the right of dissent under G.S. 55-13-02, there is no right to a trial by jury. (e) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation. SEC. 55-13-31. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs as it finds equitable. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of G.S. 55-13-20 through 55-13-28; or (2) Against either the corporation or a dissenter, in favor of either or any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Article. A-5 <PAGE> 2683 (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. A-6 <PAGE> 2684 ANNEX B ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION The table below sets forth certain adjustments to financial information from the historical financial statements of the Company for fiscal year 1997 which has been used to calculate the Exchange Ratio for the Merger. The data set forth below should be read in conjunction with the historical financial statements of the Company contained elsewhere in this Prospectus Supplement and the calculation of the Exchange Ratio under "Determination of Exchange Ratio." <TABLE> <CAPTION> TOTAL NET INCOME SHAREHOLDERS' NET SALES (LOSS)(1) EBIT(2) EBITDA(2) EQUITY ----------- ---------- -------- --------- ------------- <S> <C> <C> <C> <C> <C> Per Shareholders' Statement................... $ 9,484,476 $397,155 $535,770 $645,084 $6,672,869 Adjustments to eliminate less than wholly-owned subsidiaries................... -- -- -- -- -- ----------- -------- -------- -------- ---------- Adjusted Shareholders' Statement.............. $ 9,484,476 397,155 535,770 645,084 6,672,869 =========== -------- -------- -------- ---------- Adjustments for non-operating items: Gain/loss on disposal of PP&E............... -- -- -- Gain/loss on sale of securities............. Impairment loss............................. -- -- -- Equity in earnings of unconsolidated subsidiaries.............................. -- -- -- Gain/loss on discontinued operations........ -- -- -- Adjustment to tax expense................... -- -- -- -- -------- -------- -------- Total non-operating items..................... -- -- -- -------- -------- -------- Other Adjustments: Adjustment for dividends received from other Belk entities............................. -- -- -- Adjustment for ownership in other Belk entities.................................. (293,733) -------- -------- -------- ---------- Per Model..................................... $397,155 $535,770 $645,084 $6,379,136 ======== ======== ======== ========== COMPONENTS OF NET DEBT (CASH) PER SHAREHOLDERS' STATEMENT Assets Cash & cash equivalents................... $ (158,721) Negative cash balances reclassified to accounts payable........................ -- Receivables from affiliates, net.......... (3,137,578) Loans receivable from affiliates, net..... -- Liabilities Notes payable............................. 183,226 Current installments of long-term debt.... -- Current portion of obligations under capital leases.......................... -- Payables to affiliates, net............... -- Long-term debt, excluding current installments............................ -- Obligations under capital leases, excluding current portion............... -- Loans payable to affiliates, net.......... -- ----------- Net debt (cash)............................... (3,133,073) Adjustments to eliminate less than wholly-owned subsidiaries................... -- ----------- Per Model..................................... $(3,113,073) =========== </TABLE> - --------------- (1) Adjustments to net income are made net of income taxes based on the effective tax rate. (2) Post tax items have been grossed up based on the effective tax rate for the reported entity. B-1 <PAGE> 2685 SUPPLEMENT NO. 64 <PAGE> 2686 BELK-HARRY COMPANY -- SALISBURY, N.C. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John M. Belk and Thomas M. Belk, Jr., and each of them, as proxies, with full power of substitution, and authorizes them, and each of them, to vote and act with respect to all shares of Common Stock of the Company which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on , , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and at any and all adjournments thereof. The Board of Directors recommends a vote FOR the following proposal: PROPOSAL TO APPROVE AND ADOPT THE PLAN AND AGREEMENT OF REORGANIZATION, DATED AS OF NOVEMBER 25, 1997, BY AND AMONG BELK, INC., BELK ACQUISITION CO., AND THE SEPARATE BELK COMPANIES NAMED THEREIN (THE "REORGANIZATION AGREEMENT"). [ ] FOR [ ] AGAINST [ ] ABSTAIN In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting. THIS PROXY MUST BE DATED AND SIGNED BELOW THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT. Dated: , 1998 -------------------- -------------------------------- Signature -------------------------------- Signature Name(s) should be signed exactly as shown to the left hereof. Title should be added if signing as executor, administrator, trustee, etc. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE Supplement No. 64 <PAGE> 2687 BELK DEPARTMENT STORE OF SHELBY, N.C., INC. , 1998 Dear Shareholder: You are cordially invited to attend a Special Meeting (the "Special Meeting") of the shareholders of Belk Department Store of Shelby, N.C., Inc. (the "Company"), to be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve (i) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation ("New Belk Sub"), and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity (the "Reorganization"). New Belk, a recently formed corporation, would be the surviving corporation in the Merger. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted, without any action on the part of the holder thereof, into the right to receive 44.5544 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk ("New Belk Class A Common Stock"). It is expected that the shareholders of the Company will receive in the aggregate approximately 560,672 shares of New Belk Class A Common Stock which will represent approximately 0.9345% of the New Belk Class A Common Stock outstanding after the Reorganization. All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. The Reorganization Agreement has been approved and adopted by the Board of Directors of the Company, and the Reorganization Agreement and the Merger are subject to the approval by a majority of the outstanding shares of Company Common Stock entitled to vote at the Special Meeting. I intend to vote in favor of the Merger, as do certain other persons who are expected to serve as directors of New Belk, and if our family members, controlled corporations and family trusts who also own Company Common Stock vote in favor of the Merger, the vote of myself and such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. The Board of Directors of the Company has received a written opinion, dated November 25, 1997, of Willamette Management Associates, Inc. to the effect that the methodology used to determine the Exchange Ratio is reasonable and is fair, from a financial point of view, to the shareholders of the Company. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER. Details of the background and reasons for the proposed Merger appear in and are explained in the accompanying Proxy Statement/Prospectus. Additional information regarding the Company also is set forth in the Proxy Statement/Prospectus and in the accompanying Supplement to the Proxy Statement/Prospectus relating to the Company. It is important that your shares be represented at the Special Meeting either in person or by proxy. A proxy card for Company Common Stock has been enclosed. Whether or not you plan to attend the Special <PAGE> 2688 Meeting, please complete, sign and date the enclosed proxy card and return it in the enclosed postage paid envelope. If you plan to attend the Special Meeting, you may vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated. I strongly support the Merger and join with the other members of the Board of Directors in enthusiastically recommending the Merger to you. We urge you to vote in favor of the approval and adoption of the Reorganization Agreement and the Merger. If you should have any questions regarding the Merger, please contact Mr. Ralph A. Pitts, General Counsel, Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, telephone number (704) 357-1000. Sincerely, /s/ John M. Belk John M. Belk, Chairman, Board of Directors <PAGE> 2689 BELK DEPARTMENT STORE OF SHELBY, N.C., INC. ------------------------ NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998 TO THE SHAREHOLDERS OF BELK DEPARTMENT STORE OF SHELBY, N.C., INC.: Notice is hereby given that a special meeting of shareholders (the "Special Meeting") of Belk Department Store of Shelby, N.C., Inc. (the "Company") will be held on , 1998, at , local time, at the offices of Belk Stores Services, Inc., 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, for the following purposes: (1) To consider and vote upon a proposal to approve (a) the Plan and Agreement of Reorganization (the "Reorganization Agreement"), dated as of November 25, 1997, by and among the Company, the other Belk Companies named therein, Belk Acquisition Co., a South Carolina corporation, and Belk, Inc., a Delaware corporation ("New Belk"), pursuant to which the Company would be merged with and into New Belk (the "Merger") and (b) the Merger. The Merger will be part of a transaction pursuant to which 112 separate Belk companies will be merged into a single operating entity. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company ("Company Common Stock") (other than shares entitled to dissenters' rights of appraisal under North Carolina law and other than shares of Company Common Stock owned by other Belk Companies, which will be canceled) will be converted into the right to receive 44.5544 shares of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock to be received by each shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on , 1998, as the record date for the determination of shareholders entitled to receive notice of and to vote at the Special Meeting and at any adjournment thereof. From , 1998, until the date of the Special Meeting, a list of shareholders entitled to vote at the Special Meeting will be available at the offices of Belk Stores Services, Inc. (at the above address) for examination during normal business hours by any shareholder. Your attention is directed to the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus relating to the Company submitted with this Notice. By order of the Board of Directors /s/ John M. Belk John M. Belk Chairman, Board of Directors , 1998 PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. <PAGE> 2690 BELK DEPARTMENT STORE OF SHELBY, N.C., INC. SUPPLEMENT NO. 65 TO PROXY STATEMENT/PROSPECTUS DATED , 1998 --------------------- THIS SUPPLEMENT NO. 65 (THIS "PROSPECTUS SUPPLEMENT") IS PART OF THE PROXY STATEMENT/PROSPECTUS DATED , 1998 (THE "PROXY STATEMENT/PROSPECTUS"), AS SUPPLEMENTED, AND SHOULD BE READ IN CONNECTION THEREWITH. TO THE EXTENT THAT THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE PROXY STATEMENT/PROSPECTUS AS TO ANY MATTER RELATING TO BELK DEPARTMENT STORE OF SHELBY, N.C., INC. (THE "COMPANY"), THE DISCUSSION HEREIN SUPERSEDES THE DISCUSSION IN THE PROXY STATEMENT/PROSPECTUS. ALL OF THE INFORMATION CONTAINED HEREIN ASSUMES THAT ALL OF THE BELK COMPANIES PARTICIPATE IN THE REORGANIZATION. IF ANY ONE OR MORE BELK COMPANIES DO NOT PARTICIPATE IN THE REORGANIZATION, THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY AND THE EFFECT OF THE REORGANIZATION ON THE COMPANY AND ITS SHAREHOLDERS MAY NOT BE ACCURATE. SEE "RISK FACTORS" IN THE PROXY STATEMENT/PROSPECTUS. ALL CAPITALIZED TERMS USED HEREIN WHICH ARE NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SPECIFIED IN THE PROXY STATEMENT/PROSPECTUS. PROSPECTUS SUPPLEMENTS FOR ANY BELK COMPANY ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM RALPH A. PITTS, GENERAL COUNSEL, BELK STORES SERVICES, INC., 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500, TELEPHONE NUMBER (704) 357-1000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998. --------------------- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> THE COMPANY................................................. 2 GENERAL INFORMATION......................................... 2 SPECIAL MEETING............................................. 2 THE MERGER.................................................. 3 Recommendation of Board of Directors...................... 3 Reasons for the Reorganization............................ 3 Interests of Certain Persons in the Merger................ 3 Comparison of Shareholder Rights.......................... 3 Dissenters' Rights of Appraisal........................... 12 DETERMINATION OF EXCHANGE RATIO............................. 14 COMPARATIVE PER SHARE DATA.................................. 18 SELECTED HISTORICAL FINANCIAL INFORMATION................... 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 20 BUSINESS OF THE COMPANY..................................... 20 SECURITY OWNERSHIP OF THE COMPANY........................... 21 INDEX TO UNAUDITED HISTORICAL FINANCIAL STATEMENTS.......... F-1 Unaudited Balance Sheets.................................. F-2 Unaudited Statements of Earnings and Retained Earnings.... F-3 Condensed Notes to Unaudited Historical Financial Statements............................................. F-4 ANNEX A: DISSENTERS' RIGHTS OF APPRAISAL................... A-1 ANNEX B: ADJUSTMENTS TO CERTAIN HISTORICAL FINANCIAL INFORMATION....................................... B-1 </TABLE> <PAGE> 2691 THE COMPANY The Company was incorporated as a North Carolina corporation in 1933. The mailing address of the Company's principal executive offices is 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number at that address is (704) 357-1000. GENERAL INFORMATION This Prospectus Supplement is being furnished to the shareholders of the Company (the "Shareholders") in connection with the solicitation of Proxies by the Board of Directors of the Company for a special meeting (the "Special Meeting") of the Shareholders to be held on , 1998 at 10:00 a.m., local time, at the offices of Belk Stores Services, Inc. ("BSS"), 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500. At the Special Meeting, the Shareholders will be asked to consider and vote upon a proposal to approve and adopt (i) the Plan and Agreement of Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"), by and among Belk, Inc., a Delaware corporation ("New Belk"), Belk Acquisition Co., a South Carolina corporation, and the 112 Belk companies named therein (the "Belk Companies"), including the Company, pursuant to which the Company will be merged with and into New Belk (the "Merger") and (ii) the Merger. A copy of the Reorganization Agreement is attached as Annex A to the Proxy Statement/ Prospectus. The Merger would be part of a transaction in which the Belk Companies will be merged into a single operating entity pursuant to the Reorganization Agreement. New Belk will be the surviving corporation in the Reorganization. If the Merger is consummated, each outstanding share of common stock, par value $100 per share, of the Company (the "Common Stock") (except for treasury shares and shares of Common Stock owned by a Shareholder who perfects his dissenters' rights of appraisal under North Carolina law), will be converted, without any action on the part of the Shareholder, into the right to receive 44.5544 shares (the "Exchange Ratio") of Class A Common Stock, par value $.01 per share, of New Belk (the "New Belk Class A Common Stock"). All of the shares of New Belk Class A Common Stock received by each Existing Belk Shareholder in the Reorganization will be aggregated and the total will be rounded to the nearest whole share. No fractional shares will be issued. SPECIAL MEETING The record date for the Special Meeting is , 1998 (the "Record Date"). Only holders of Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the Record Date, there were shares of Common Stock outstanding held of record by Shareholders. The presence in person or by proxy of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Special Meeting is necessary to constitute a quorum of the Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting in person or by proxy, is required to approve and adopt the Reorganization Agreement and the Merger. Holders of record of Common Stock are entitled to one vote per share on any matter that may properly come before the Special Meeting. As of the Record Date, the executive officers and directors of the Company owned % of the outstanding shares of Common Stock. Mr. John M. Belk and certain other persons who are expected to serve as directors of New Belk have indicated that they intend to vote in favor of the Merger. If Mr. Belk and such other prospective directors of New Belk vote in favor of the Merger, and if the family members, controlled corporations and family trusts of Mr. Belk and such other prospective directors who also own Common Stock vote in favor of the Merger, the vote of such persons, corporations and trusts in favor of the Merger would be sufficient to approve the Merger under the governing documents of the Company and applicable state law. 2 <PAGE> 2692 THE MERGER RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER OF THE COMPANY WITH AND INTO NEW BELK IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED AND ADOPTED THE REORGANIZATION AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE REORGANIZATION AGREEMENT AND THE MERGER. For additional information with respect to the determination made by, and recommendation of, the Board of Directors, see "-- Reasons for the Reorganization" herein and "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. REASONS FOR THE REORGANIZATION The expected benefits of the Reorganization for the Company and the other Belk Companies participating in the Reorganization are described in "The Reorganization -- Reasons for the Reorganization" in the Proxy Statement/Prospectus. There can be no assurance, however, that any of these benefits will be achieved. See "Risk Factors" in the Proxy Statement/Prospectus. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the Merger, the Shareholders should be aware that certain officers and directors of the Company have interests in the Reorganization that may present them with potential conflicts of interest with respect to the Merger. For a discussion of these interests, see "The Reorganization -- Interest of Certain Persons in the Reorganization" in the Proxy Statement/Prospectus. COMPARISON OF SHAREHOLDER RIGHTS Upon consummation of the Merger, each Shareholder who does not exercise dissenters' rights of appraisal as described herein will become a holder of New Belk Common Stock. The rights of the Shareholders will thereafter be governed by Delaware Law, including Delaware General Corporation Law (the "DGCL"), the New Belk Certificate and the New Belk Bylaws. The following is a summary of the material differences between the rights of the Shareholders and the rights of the New Belk Stockholders pursuant to the differences between the DGCL and the North Carolina Business Corporation Act (the "NCBCA"), between the New Belk Certificate and the Articles of Incorporation of the Company (the "Company Articles") and between the New Belk Bylaws and the Bylaws of the Company (the "Company Bylaws"). This summary does not purport to be a complete statement of all of the differences between the rights of the Shareholders and the New Belk Stockholders. This summary is qualified in its entirety by reference to the full text of the New Belk Certificate, the New Belk Bylaws, the DGCL, the Company Articles, the Company Bylaws and the NCBCA. Authorized Capital Stock. The authorized capital stock of New Belk consists of: (i) 200,000,000 shares, par value $.01 per share, of New Belk Class A Common Stock; (ii) 200,000,000 shares, par value $.01 per share, of New Belk Class B Common Stock; and (iii) 20,000,000 shares, par value $.01 per share, of New Belk Preferred Stock. There are no current plans to issue New Belk Preferred Stock. The authorized capital stock of the Company consists of 15,456 shares of Common Stock. Classes of Common Stock. The shares of New Belk Class A Common Stock and New Belk Class B Common Stock are identical in all respects, except for voting rights and certain conversion rights and transfer restrictions in respect of New Belk Class A Common Stock. The holders of New Belk Class A Common 3 <PAGE> 2693 Stock are entitled to 10 votes per share. The holders of New Belk Class B Common Stock are entitled to one vote per share. Shares of New Belk Class A Common Stock may be owned only by Class A Permitted Holders. If a share of New Belk Class A Common Stock is transferred to any person other than a Class A Permitted Holder, whether by sale, assignment, gift, bequest, appointment or otherwise, such share will be converted automatically into a share of New Belk Class B Common Stock. Shares of New Belk Class A Common Stock are convertible into New Belk Class B Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of New Belk Class B Common Stock for each share of New Belk Class A Common Stock converted. Shares of New Belk Class A Common Stock held by a New Belk Stockholder who is a Class A Permitted Holder will also automatically convert into New Belk Class B Common Stock in the event that such New Belk Stockholder no longer meets the requirements of a Class A Permitted Holder. New Belk Class B Common Stock has no conversion rights. The Company Articles provide for only one class of common stock. Dividends and Other Distributions. The DGCL permits a corporation, subject to restrictions in the certificate of incorporation, to declare and pay dividends to its stockholders out of surplus (defined as net assets minus capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of any classes which may have a preference upon the distribution of assets. The New Belk Certificate provides that the New Belk Board may determine the date and amount of the dividends to be distributed to New Belk Stockholders subject to the preferences of New Belk Preferred Stock, of which none currently is issued and for which no dividend right now exists. New Belk may not pay dividends or make distributions to holders of any class of New Belk Common Stock unless simultaneously with such dividend or distribution New Belk makes the same dividend or distribution with respect to each other class of outstanding New Belk Common Stock. In the case of dividends or other distributions payable in shares of a class of New Belk Common Stock, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock which occur after the first issuance of a class of New Belk Common Stock, only shares of New Belk Class A Common Stock may be distributed with respect to New Belk Class A Common Stock and only shares of New Belk Class B Common Stock may be distributed with respect to New Belk Class B Common Stock. Whenever a dividend or distribution, including distributions pursuant to stock splits or divisions of a class of New Belk Common Stock, is payable in shares of New Belk Class A Common Stock or New Belk Class B Common Stock, the number of shares of each class of New Belk Common Stock payable per share of such class of New Belk Common Stock must be equal in number. In the case of dividends or other distributions consisting of other voting securities of New Belk or of voting securities of any corporation which is a wholly-owned subsidiary of New Belk, New Belk must declare and pay such dividends in two separate classes of such voting securities, identical in all respects, except that (i) the voting rights of each such security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each such security paid to the holders of New Belk Class A Common Stock and (ii) such security paid to the holders of New Belk Class A Common Stock must convert into the security paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. In the case of dividends or other distributions consisting of securities convertible into, or exchangeable for, voting securities of New Belk or voting securities of another corporation which is a wholly-owned subsidiary of New Belk, such convertible or exchangeable securities and the underlying securities must be identical in all respects (including, without limitation, the conversion or exchange rate), except that (i) the voting rights of each security underlying the convertible or exchangeable security paid to the holders of New Belk Class B Common Stock must be one-tenth of the voting rights of each security underlying the convertible or exchangeable security paid to the holders of the New Belk Class A Common Stock and (ii) such underlying securities paid to the holders of New Belk Class A Common Stock must convert into the underlying securities paid to the holders of New Belk Class B Common Stock upon the same terms and conditions applicable to the conversion of New Belk Class A Common Stock into New Belk Class B Common Stock and must have the same 4 <PAGE> 2694 restrictions on transfer and ownership applicable to the transfer and ownership of the New Belk Class A Common Stock. Pursuant to the NCBCA, a corporation, subject to restrictions in the articles of incorporation, may make distributions to shareholders as long as such distributions do not cause (i) the corporation to be unable to pay its debts as they come due in the usual course of business or (ii) the corporation's total assets to be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise), the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Company Bylaws provide that the Board of Directors of the Company (the "Company Board") may from time to time declare dividends on the Company's outstanding shares in the manner and upon the terms and conditions provided by law and by the Company Articles. Special Meetings of Shareholders. The DGCL permits the board of directors or person(s) authorized by the certificate of incorporation or the bylaws to call a special meeting. The New Belk Certificate authorizes only the Chairman of the New Belk Board and, upon a resolution adopted by the affirmative vote of a majority of the entire New Belk Board, the New Belk Board to call a special meeting. The NCBCA permits the board of directors, person(s) authorized by the articles of incorporation or the bylaws and shareholders of at least 10% of all votes entitled to be cast on the proposed corporate action to call a special meeting. The Company Bylaws authorize the Chairman, President, Secretary, the Company Board and any shareholder pursuant to the written request of the holders of not less than 10% of all the shares entitled to vote at the meeting to call a special meeting. Voting Requirements Generally. Unless the certificate of incorporation, the bylaws of the corporation or the DGCL specifies a different voting requirement, the DGCL permits the affirmative vote of the majority of shares present in person or represented by proxy at a duly held meeting at which a quorum is present and entitled to vote on the subject matter to be the act of the stockholders. The New Belk Bylaws provide that, in all matters other than the election of directors, the affirmative vote of a majority of outstanding shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a greater vote is required by law, by the New Belk Certificate or by the New Belk Bylaws. Directors will be elected by the affirmative vote of a plurality of the shares of New Belk Class A Common Stock and New Belk Class B Common Stock, taken together, present in person or represented by proxy at the meeting and entitled to vote on the election of directors. The New Belk Certificate provides that to alter, amend, repeal or adopt any provision inconsistent with the provisions of the New Belk Certificate related to stockholder meetings or the provisions of the New Belk Certificate which describe the membership, powers and procedures of the New Belk Board requires the affirmative vote of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class. In addition, the New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of capital stock of New Belk, voting together as a single class, to remove for cause a member of the New Belk Board. According to the NCBCA, unless the articles of incorporation, a bylaw adopted by the shareholders or the NCBCA specifies a different voting requirement, if the votes cast within the voting group in favor of the corporate action exceed the votes cast in opposition to the corporate action at a duly held meeting at which a quorum is present, the corporate action is deemed to be approved by the stockholders. The Company Articles do not specify a different voting requirement. Amendment of Certificate or Articles of Incorporation. DGCL requires that an amendment of the certificate of incorporation of a corporation be adopted by the board of directors and the holders of a majority of the outstanding shares of stock entitled to vote thereon. The holders of the outstanding shares of a class are entitled to vote as a separate class on a proposed amendment that would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them 5 <PAGE> 2695 adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but would not so affect the entire class, then only the shares of the series so affected by the amendment will be considered a separate class for purposes of voting by classes. The New Belk Certificate is consistent with the foregoing provisions of the DGCL. Under the NCBCA, unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt certain minor amendments to the corporation's articles of incorporation without shareholder action, such as to delete the names and addresses of the initial directors. Otherwise, the NCBCA requires that an amendment to the articles of incorporation be recommended by the board of directors to the shareholders and approved (i) by a majority (unless the articles of incorporation, a bylaw adopted by the shareholders or the board of directors require a greater vote or a vote by voting groups) of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights and (ii) when a quorum is present, by all other voting groups entitled to vote on the amendment through casting more affirmative than opposing votes. As under the DGCL, the holders of the outstanding shares of a class or series are entitled to vote as a separate voting group (if shareholder voting is otherwise required by the NCBCA) on a proposed amendment if the amendment would change certain fundamental rights and preferences of that class or series. The Company Articles do not specify a greater voting requirement to amend the Company Articles. Amendment of Bylaws. The DGCL requires stockholder approval to amend the bylaws of the corporation, unless the certificate of incorporation confers the power to amend such bylaws to the board of directors. Conferring such power to the board of directors of the corporation does not divest or limit the stockholders' power to adopt, amend or repeal the bylaws of the corporation. The New Belk Certificate confers upon the New Belk Board the power to adopt, amend or repeal the New Belk Bylaws. The NCBCA vests the power to amend or repeal the bylaws of the corporation in the board of directors except (i) as otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or the NCBCA and (ii) a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. Conferring such power upon the board of directors of the corporation does not divest the shareholders of their power, nor limit their power to adopt, amend or repeal the bylaws of the corporation. The Company Bylaws provide that the Company Bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Company Board or by the affirmative vote of a majority of the shares outstanding and entitled to vote at any regular or special meeting of the Shareholders. Furthermore, the Company Bylaws provide that the Company Board has no power to adopt a bylaw: (i) requiring more than a majority of the voting shares for a quorum at a meeting of the Shareholders, except where higher percentages are required by law; (ii) providing for the management of the Company otherwise than by the Company Board or its executive committees; (iii) increasing or decreasing the number of directors; or (iv) classifying and staggering the election of directors. The Company Articles provide that the Company Board has power, by vote of a majority of all the directors and without the assent or vote of the shareholders, to make, alter, amend and rescind the bylaws of the Company. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, the DGCL permits any action that may be taken by an annual or special meeting of stockholders to be taken without a meeting and without prior notice. Holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote on the action were present and voted must sign the written consent(s) describing such action. The New Belk Certificate provides that no action required to be taken or which may be taken at any annual or special meeting of New Belk may be taken without a meeting, and the power of New Belk Stockholders to consent in writing, without a meeting, to the taking of any action is denied specifically. Pursuant to the NCBCA, unless the articles of incorporation or bylaws provide otherwise, any action that may be taken by an annual or special meeting of shareholders may be taken without a meeting and without 6 <PAGE> 2696 prior notice, if all holders of outstanding shares entitled to vote on such action sign the written consent(s) describing such action. The Company Bylaws and Company Articles do not provide otherwise. Filling Vacancies in the Board of Directors. Unless otherwise provided in the certificate of incorporation or the bylaws, the DGCL permits vacancies in the board of directors and newly created directorships to be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at the time of filling any vacancy or newly created directorship, the directors then in office constitute less than a majority of the whole board as constituted immediately prior to such increase, the Delaware Court of Chancery may, upon application of stockholders holding at least 10% of the total number of shares outstanding having the right to vote for such directors, order an election to be held to fill any such vacancies or newly created directorships or to replace the directors chosen by the directors then in office. According to the New Belk Certificate, subject to the rights of the holders of any series of New Belk Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors and any vacancies on the New Belk Board resulting from death, resignation, disqualification, removal or other cause must be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the case may be, and not by the New Belk Stockholders. The New Belk Certificate provides that whenever the holders of any one or more classes or series of New Belk Preferred Stock have the right, voting separately by class or series, to elect directors at an annual or special meeting, (i) the election, filling of vacancies and other features of such directorships will be governed by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series of the New Belk Preferred Stock, (ii) the then authorized number of directors of New Belk will be increased by the number of additional directors to be elected and (iii) the directors so elected will serve a term which will expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of the New Belk Certificate or the designation of the New Belk Preferred Stock applicable to such class or series. Unless otherwise provided in the articles of incorporation, the NCBCA permits a vacancy in the board of directors to be filled by the shareholders or by the board of directors. If the directors remaining in office constitute fewer than a quorum and if the vacancy is one that the directors are authorized to fill, then the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. The Company Bylaws provide that a vacancy occurring in the Company Board may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining director, but a vacancy created by an increase in the authorized number of directors must be filled only by election at an annual meeting or at a special meeting of the Shareholders called for that purpose. The Shareholders may elect a director at any time to fill any vacancy not filled by the directors. Number of Directors. The DGCL requires at least one director. The number of directors is set by the bylaws or the certificate of incorporation, and if the number of directors is set by the certificate of incorporation, then that number may be changed only by an amendment to the certificate of incorporation. The New Belk Bylaws provide for not less than two nor more than 18 directors, as determined from time to time exclusively by the New Belk Board pursuant to a resolution adopted by a majority of directors of New Belk then in office. The NCBCA requires a corporation to have at least one director. The number of directors is set in the articles of incorporation or the bylaws. The shareholders may from time to time increase or decrease the number of directors by amendment to the articles of incorporation or the bylaws, but no such decrease shall be made for a corporation to which cumulative voting is applicable when the number of shares voting against the proposal for decrease would be sufficient to elect a director by cumulative voting if such shares are entitled to be voted cumulatively for the election of directors. If a board of directors has power under the articles of incorporation or bylaws to fix or change the number of directors and if the shareholders do not have the right to cumulate their votes for directors, the board may increase or decrease the number of directors by not more 7 <PAGE> 2697 than 30% during any 12-month period. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or (unless the articles of incorporation or a shareholders' agreement shall otherwise provide) the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa. The Company Bylaws require the Company Board to consist of at least three, but no more than 15, members. Qualifications of Directors. The DGCL allows the certificate of incorporation or the bylaws to provide for the qualifications of directors. A director does not have to be a stockholder in the corporation unless otherwise provided in the certificate of incorporation or the bylaws. The New Belk Bylaws and the New Belk Certificate do not provide for any qualifications for directors of the New Belk Board. The NCBCA allows the articles of incorporation or the bylaws to provide for the qualifications of directors. A director need not be a resident of North Carolina or a shareholder of the corporation unless otherwise provided for in the articles of incorporation or the bylaws. The Company Bylaws do not require directors of the Company to be residents of North Carolina or shareholders of the Company. Classification of the Board of Directors. The DGCL permits the certificate of incorporation or the bylaws to provide for the classification of the board into one to three classes, with the term of each class expiring at the annual meeting in successive years beginning with the first class and progressing to the third class, if any. Thereafter, directors are chosen for a full term to succeed those whose terms expire. The New Belk Certificate divides the directors of New Belk into three classes, designated Class I, Class II and Class III. In the event that the number of directors is not evenly divisible by three, the New Belk Board will determine in which class or classes the remaining director or directors, as the case may be, shall be included. The term of office of each director is three years; provided, however, all of the initial directors shall serve a term of office expiring at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate; and provided further, that the directors in Class I, Class II and Class III shall serve terms commencing on the date of their election as directors at the first annual meeting of the stockholders after the date of filing of the New Belk Certificate and expiring at the annual meeting of New Belk Stockholders in 1999, 2000 and 2001, respectively. The NCBCA provides that if there are nine or more directors, the articles of incorporation or the bylaws may allow for staggering their terms by dividing the total number of directors into two, three or four groups, with each group containing one-half, one-third or one-fourth of the total. The term of each group expires each successive year beginning with the first group and progressing to the fourth group. Thereafter, directors are chosen for a term of two, three or four years to succeed those whose terms expire. The Company Articles do not provide for the staggering of the Company Board. Removal of Directors. The DGCL provides that if the certificate of incorporation does not provide otherwise and the board of directors is classified, then the directors may be removed only for cause. The New Belk Certificate requires the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of New Belk entitled to vote to remove for cause a member of the New Belk Board. Under the NCBCA, unless the articles of incorporation provide that directors may be removed only for cause, the shareholders may remove one or more directors with or without cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. The Company Articles do not provide otherwise. Cumulative Voting. Under both the DGCL and the NCBCA, cumulative voting of stock applies only when so provided in the certificate of incorporation or the articles of incorporation, as the case may be. Neither the New Belk Certificate nor the Company Articles provides for cumulative voting. 8 <PAGE> 2698 Conflict-of-Interest Transactions. The DGCL generally permits transactions involving a Delaware corporation and an interested director or officer of that corporation if: (i) the material facts are disclosed and a majority of disinterested directors consents; (ii) the material facts are disclosed and a majority of shares entitled to vote thereon consents; or (iii) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board or the stockholders. Similar to the DGCL, the NCBCA generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the disinterested directors or committee authorized, approved or ratified the transaction; (ii) the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the disinterested shares authorized, approved or ratified the transaction; or (iii) the transaction was fair to the corporation. Indemnification and Limitation of Liability. The DGCL gives a corporation the power to indemnify an agent of the corporation against expenses, judgments, fines and settlements incurred in a proceeding, other than an action by or in the right of the corporation, if the agent acted in good faith and reasonably believed that the act was in the best interests, or at least not opposed to the best interests, of the corporation, and, with respect to a criminal proceeding, the agent had no reasonable cause to believe the agent's conduct was unlawful. In the case of an action by or in the right of the corporation, the corporation has the power to indemnify any agent against expenses incurred in defending or settling the action if the agent acted in good faith and reasonably believed